Werner Enterprises, Inc. Stock

Next we have Werner Enterprise and very happy to have with us President and CFO, Chris Wikoff, President and CLO Nathan Meisgeier and [indiscernible] Gentlemen, thanks so much for joining us. Obviously, the cycle has taken precedence in [indiscernible] So start off by giving us a how [Audio Gap]-- where are we right now?

[Audio Gap] Over indexing on more recent spot rates being a little bit softer, debate on is that seasonal or is that sub seasonal. It's a data point. But when we're talking about rate, we're really talking about overall blended rate, contractual rates that continue to be high single digits, low double digits in terms of contract renewals.

So all of that is positive. It's more supply driven. We think that's going to continue. Enforcement has been multipronged. It's also maturing. So not to deep dive into that right now. But while it's supply driven, the freight flows continue to be positive, steady.

We're seeing higher bid volume and some record highs on bid volume in Dedicated, some continued elevated mini bids in one way as I think shippers are transitioning from spot and evaluating the market and transitioning to more to contract and some of that in-between space. So overall, I think it's positive. Not much to point to in terms of demand outside some of the tech and data center build-out. But overall, I think the fundamentals are strong despite the fact that it's more supply driven.

Got it. That is great to hear. Maybe to unpack that a little bit. My next question was about the seasonality, kind of what we saw in the late summer, kind of that lull, if you will, in some of the data. Again, do you think that's largely seasonal? Or do you think there's something else going on?

I think some of it is seasonal. As I said, I think there's going to be ebbs and flows to spot as in a tighter market, shippers who have had a slice of their supply chain that's been more geared towards spot, and they're evaluating that and other options, which can be moving into contract.

So there's going to be some ebbs and flows to spot. I think it's one metric -- the tender rejects continue to be elevated. That, too, may have had some softness relative to some other months. But overall, it's still 3x what it was a year ago in terms of tender rejects. So I wouldn't over-index on spot.

Got it. From my seat, I think the fact that contract rates have held up or even gone up in that period that spot has come off a little bit of its size is an indication that this probably is seasonality and a sign that, that kind of trend is positive. Kind of do you think that's fair? And it sounds like you're seeing that as well through.

Yes, Ravi, I think that's fair. I think it's also important to note specifically as it relates to Werner with our exposure to retail, a lot of discount value retail. We also have a good amount of exposure to food and bev. And so those volumes for us have been relatively stable. These are replenishment items.

These are consumables that are shipping on a daily, weekly business or basis. And so from our perspective, at least, it's felt steady and stable from all the way through the second quarter here into the third in terms of our volumes.

Got it. You said kind of demand hasn't really picked up just yet. Maybe just a few questions on that. Starting with, again, seasonality and peak season, what kind of visibility do you have on peak season already so far? Like do you think it can be a record peak season? Kind of how do you think we move from here?

Well, again, maybe starting back to rate. I think we've got more confidence in peak premiums, peak rate being better than the last several years. A bit early to be overly focused on peak volumes. Some of those from shippers are still coming in, in terms of their outlook.

Some of those we have in hand, but compliance could also be different. Although I think there's other anecdotal points, including imports and a lot of different data out there reports on imports. But generally, it looks like imports are holding up. I think that's favorable in terms of what volumes could be relative to peak.

Got it. And just kind of looking at -- it sounds like your ultimate target here is pushing rate, which kind of is completely understandable. Remind us again when your 2027 bid season starts, I think that should be sometime in October. What is your expectation there? And do you think that rate kind of continues from what you saw in '26? Do you think it's a step function improvement? Do you think it's the later half of bid season in the middle of '27 that really picks up?

Yes. So I think your question is specifically more focused on One-Way. So we're talking about the one-way bid season. So just to maybe step back, give a little bit of perspective. So in the second quarter, we reported 10% up One-Way trucking rate per total mile. Combined with that was better utility, up 16%. And so revenue per truck per week almost up about 28% for us.

So the combination of those things were very good. As you mentioned, bid season pretty much winding down here for '26, starting to think about '27, we would expect those first handful of annual bids really in the next 30, 60 days. Based on our base case in terms of what's happening with the market, it's still going to be tight.

Capacity attrition continues. We would think that the demand backdrop heading into peak would be strong. And as you start to negotiate some of those bids, it should be a very strong operating environment. Obviously, it's been that way all year long. After 3 or 4 years of one-way rates that have been flat to down, we're certainly in need of a couple of bid seasons to get this pricing to levels that are more reinvestable, more sustainable.

And so yes, our expectation -- it's early enough for us that we're probably not going to throw out a -- quantify the number right now, but there's no reason to think heading into the coming year that there wouldn't be ongoing tightness in the market, which would lead to strong rate increases on One-Way business heading into '27 and that, of course, would flow back into Dedicated as well.

Got it. Let's take a step back here and kind of go back to how we got here because you guys were one of the first to flag the supply side risk. I think Derek was one of the first people to quantify like 10% to 15% capacity exit as a result of the immigration regs. And then we've had Montgomery on top of that.

So classic sell side, what innings question -- what innings are we in question, what innings are we in on the immigration stuff? What innings are we in on the Montgomery stuff? And ultimately, which one do you think has a bigger impact on rates?

Yes, there's a lot there. So on the -- you call it the immigration stuff. So there's several parts to that, right? So there's English language proficiency, which overlaps with non-domiciled CDLs, which probably has something to do with CDL mills because I think most of those drivers that are -- that fit in the first 2 buckets probably went through a CDL mill.

So all of those things thrown into one bucket. I think the stats would say, so the Fed maybe 7 months ago sized it at 194,000 non-domiciled noncompliant CDLs. Against that number, we think we're at about 30,000 that are out now. So you do the math there, that's only 15% of the way there.

There has to be some overlap with that number in the ELP and that ELP number is, I think, 28,000, 30,000 was the last we saw. coincidentally, those 2 numbers are pretty similar. And then truck driving schools, 8,000 schools that have been closed as a result of enforcement actions.

Interestingly, again, all these things are related because the Feds have said that the schools that they targeted were schools where they saw trends from the first 2 out-of-service issues. So if you weren't speaking English and you had 1,000 people that all went to the same school, they probably should go check out that school and see what's going on.

So early innings on all 3 of those, I think, are still where we would say. Derek and I think the Q2 call called it the third inning. So even if we're another inning path, we're still in the first half of the game, lots of sports metaphors here. We could switch to something else, I guess.

And then the other part of it is the Montgomery side. So that's a very -- I can't said all of those first things were related. Montgomery feels unrelated for the most part because that's truckers and brokers who don't have good safety qualifications or good safety policies and driving that capacity out of the market is a different thing.

And that decision was helping out May. So are we 4 months post Montgomery. And it really feels -- we've had that question a lot today in our one-on-ones. It feels like the dust is still just barely settling on Montgomery. People are trying to figure out where is the line on what is safe enough.

The TIA, so Transportation Intermediaries Association is trying to get the Feds to give us a more granular analysis of that so that we can all bounce our policies against that. But really coming to the Werner side, we did not see a big blip coming out of Montgomery. We had already had good vetting practices on our brokerage side.

We are confident in that we were using all of the available technology, all the available tools to us to vet carriers. So we haven't seen shrinkage as a result of Montgomery. We saw shrinkage in our fleet available to us on the third-party side prior to Montgomery as we were improving those carrier qualification standards.

But the market has to figure this out. And then I'll end on one quick note that you didn't mention Montgomery, a related case is the Home Depot case out of Texas, which was also a Werner case where the Texas Supreme Court told Home Depot, you get dismissed from this lawsuit as a shipper because Werner is a safe choice, my words, maybe not the Texas Supreme Courts, a safe choice for shippers or for brokers to choose to give their freight to.

And we had a cousin case of that on the other side of the state that was dismissed against a large shipper, a name brand that everyone to recognize so our shippers have some protection that happens very quickly after Montgomery that gives them some comfort. I think other carriers and other brokers are going to have to find their own footing on that.

Got it. So what do you think is the net result of Montgomery -- and how long does it take? Do you think this just drives like very small marginal bad actors on the capacity side of the business? Do you think it drives an asset-light to asset heavy shift? Do you think it sends pricing on the insurance side up for everyone, all of the above, kind of what's the net implication?

Yes. So I'll try to do it in reverse order. Insurance pricing, you've probably heard and we've certainly heard very different stories from folks that are -- that seem like they're similarly situated on that. Our insurance lift on that was negligible. There were some that were saying publicly they saw it being a multiple of an increase on their insurance for brokerage. So that's -- I think it depends on where you were coming from on the front end.

As far as what's it doing to drive freight, I think it drives freight to larger or more sophisticated, which, of course, those 2 things tend to go hand in hand. And really, a shipper is looking for what's the buffer between me and the ultimate risk. And so if that buffer is greater sophistication in carrier qualification, great. If that buffer is you already have a reputation as a safe carrier, great.

If that buffer is you have a larger tower of insurance that's the buffer between me and the ultimate plaintiff who's looking for a deep pocket, great. I don't -- if I'm a shipper, I don't care which one of those 3 benefits you're giving me if you're giving me all of them even better.

So the larger and more sophisticated brokers and asset carriers, I think, both benefit.

Got it. Last question on this topic. You guys have heavily invested in your driving schools over time. What kind of advantage does that give you now? Is that an area that you guys are looking to increase your investments as well?

Yes. So for those who don't know, we own Roadmaster driver schools. It's 20 locations around the United States. We tend to put those where we've got customers in freight because we can pump out graduates who presumably are domiciled near there and get them into a job that is a good fit for them to get them home into our dedicated fleets usually more often and get them home and keep them happy.

So we have seen a benefit from the Feds closing other schools and increasing throughput to our schools. So we love that. We have the advantage, we think, of the ability to pick and choose and the better graduates from Roadmaster.

And so we can make sure that the quality comes to Werner. And we're seeing some quality improvements on the front door, and that's allowing us to increase our throughput to Werner as far as graduates as well. And then we're proud of the fact that we allow the drivers from Roadmaster to choose where they want to go work, and we hope that they would see Werner as an employer of choice, and we're confident in that.

Got it. All of this, obviously, the main impact or benefit would be on the one-way side. Switching to Dedicated here for a second. Obviously, kind of the majority of your business kind of -- and where you guys made a big acquisition kind of are pushing deeper into how much runoff benefit do you see from One-Way dedicated here?

Kind of is it relatively isolated because that was already kind of a good kind of daily go home everyday kind of business to begin with? How much lift do you see?

I think overall, for the driver labor market, I mean, it continues to be tight. So the Roadmaster positions us better. I think to your point, Ravi, dedicated, more dedicated jobs and having a higher mix of dedicated helps with that respect. So there's a number of tools that we can use that position us well to work through a tighter driver market.

We are seeing improvement this quarter relative to the second quarter. And then alongside that, we can also do things in parallel to leveraging those tools of growing owner operator as well as looking in Dedicated at private fleet conversions where presumably there's an incumbent pool of drivers.

Obviously, they need to meet the Werner standard, but that can be an accelerated way to continue to grow and bring on quality drivers in a more accelerated fashion.

Got it. Are you seeing any structural shift from shippers who think that this is going to be a multiyear, multi-innings supply side issue. And so I want out at an accelerated rate of my private fleet.

So are you seeing far more -- any more incoming on the fleet conversion side? Then you would normally do at this point in the cycle?

I'm sorry.

Then you would normally do at this point in the cycle?

I think so. I mean there's definitely -- I mean, there's a number of things going that I think are challenging for private fleets, whether it's the driver availability issue that we just discussed, whether it's much higher-priced equipment.

Now some of these fleets invested in more equipment back during the height of the COVID era. Those trucks are now 3 to 4 years old, getting to a replacement perspective. You got these emission regulations that are coming. And so all these things are, I think, challenging for private fleets, especially the smaller ones who maybe don't have the infrastructure like a larger private fleet or like a for-hire fleet.

So as a result -- and then, of course, you got the insurance and the risk on top of all that. So I think all those things together are probably leading some folks to think about whether or not they want to continue to be in the private fleet business or if they want to offload that and focus more on where the core part of their business is?

So we have those opportunities that are right in our pipeline today. They might be in different stages. It is a longer sales cycle when you're pursuing private fleets, but all of that's in play right now.

Got it. So on that point, I want to say the sky is a limit on One-Way pricing because that seems really extreme. But I think we do expect record spot rates, record contract rates, and you referenced that in your opening remarks as well on the One-Way side.

Is that the same kind of expectation on the Dedicated side as well? Kind of are you looking for pushing for more volume and pushing for more fleet conversion versus a pricing opportunity or both? Or what's the mix there of volume versus price?

Well, the tightness of the market will certainly -- is already impacting Dedicated and will continue to. I mean, sitting where Dedicated margins are, we don't need the amount of improvement that -- and it hasn't been under near the duress over the last 4 or 5 years that One-Way has been under.

And so as a result, we're going to continue to push increases. Our revenue per truck per week that we reported was 5% in the second quarter. Our guide for the full year is 3% to 5%. And that's muted a little bit by the FirstFleet acquisition where their number was -- the revenue per truck per week number was a little bit lower than ours.

On a legacy basis, our number in the second quarter was close to 8%. That was driven partly by rate. Our contract renewals continue to go well. Our retention rates, both in the legacy dedicated fleet as well as in the first fleet are very good in this environment.

As you might imagine, we provide a very high level of service, a good, stable financial carrier, so a good place for folks to move their Dedicated in. So all that's moving in the right direction, and we would certainly continue to expect that in the coming years potentially.

We think that there's good share gain in Dedicated over time for a lot of the reasons we've already talked about. And so we're going to be there waiting for shippers to come, and we're going to be out in front of them looking to continue to grow our share in Dedicated right now, that's about 75% to 80% of TTS for us.

And that's good stable margins. Margins, we'd continue to improve to get us back over kind of to that double-digit threshold.

Got it. Let's talk about FirstFleet. Obviously, a significant acquisition for you guys a couple of quarters ago. How has that gone relative to your expectations, both in terms of integration, cost synergy as well as potential revenue synergy opportunities?

Yes. Excellent transaction. We're very pleased with it. It's a solid business at scale, top 10 dedicated pure dedicated player over $600 million in annualized revenue. Excellent leadership team, focused on technology innovation, good driver retention and durable end markets, food, beverage, specialized bakery.

So everything that was very attractive to us. It fits well and complements our portfolio the desire to continue to be durable, but still lean in and diversify in terms of end verticals and end markets. And it's going well.

Day 1, immediately accretive, good durable margins, but a clear line of sight on how we can improve those margins, close the gap to our organic Dedicated margins. The $18 million of synergies that we've talked about, which is basically a 300 basis point expansion to their margin is well underway. We've actioned about half of that with a line of sight on how to action the rest in 2027. So it's going very well, solid customer retention, driver retention and overall integration very much on pace.

Got it. Obviously, the last lever here, logistics. So we spoke about what Montgomery might mean for the asset-heavy business. What do you think that means for the asset-light business in terms of like taking share from smaller players or potentially seeing customers moving to asset heavy? Kind of where does logistics end up net of some of those trends?

Yes. At least with respect to Montgomery, I think it's overall positive. So as we were talking about, I mean, it's hard to put our finger on right now something tangible in terms of how it's moving the needle specifically on on capacity.

But overall, I think it's constructive for those larger carriers, sophisticated carriers, both on the asset and the brokerage side that have a safety focus that are well insured and have sophisticated systems and processes in terms of carrier betting. What I can tell you anecdotally is we have large customers on the brokerage side.

They might also be doing business with us on the asset side that are asking more questions about our betting practices. Those are great conversations. We like those conversations. I mean it really points to that customers are very much aware of the Montgomery ruling, the precedent that's been set of negligence anywhere in the decision-making process and supply chain can result in liability. Liability can follow that negligence.

So shippers are aware, and it's constructive that it's not just about price and on-time delivery, but there's also a broader focus on risk management as part of their equation as they're evaluating risk supply chain.

Got it. So let's put all of that together. You guys obviously have very robust cycle dynamics on the One-Way side. You have the first fleet acquisition on the dedicated side. You have opportunities some Montgomery in the logistics side. What does it mean for OR in 2026 and potentially through the cycle maybe relative to previous up cycles?

Yes. So just to talk about recent trends and trajectory, and then we can talk about where we go from there. But in the first quarter, we were mid-2% on adjusted OI on -- sorry, we were 1.5% consolidated, we are mid-2% in TTS.

We basically doubled both of those going Q1 to Q2. So on a consolidated basis, we went from 1.5% to 3%. On TTS, we went from mid-2% to between 5% and 6% to end the second quarter. So from a TTS perspective, mid-cycle margins, we're still targeting low double digits. So we still have a gap to go.

It's going to come through market help. It's going to also come through some self-help in terms of tech-enabled cost synergies, what we're doing intentionally around the portfolio, the first fleet synergies. But then from a market perspective, what we're seeing in terms of rate, further demand for a dedicated model that will come with a higher contribution margin.

And as equipment resale values on used equipment normalizes, all of that is on a cumulative basis, very helpful and gives us confidence in mid-cycle achieving low double digits. So between now and end of the year, for all of those reasons, we expect overall margins to continue to expand.

Logistics add some margin pressure in the second quarter. We talked in our last earnings call about late July, we were already seeing that margin correction. That's continued throughout this quarter. So that's helpful.

Our second half guide or I guess, if you look at our full year guide on gains and just kind of do the math on the second half, it really points to gains being favorable second half versus the first half. So all of that favorable and should be accretive to margins.

Fuel volatility is a distraction right now and a headwind in the quarter, just given the extreme pace that it's accelerating. And even with having fuel surcharges where we can largely pass that on, particularly in a portfolio that has more dedicated round trip miles where we don't have any empty mile exposure in this type of an accelerated pace of volatility, it's still difficult for those weekly resets to keep pace.

Got it. Let's just talk about that a little bit more because there is some concern about modal shift as well because of $6 diesel. Kind of are you seeing any of that? And also kind of is there any way you guys can accelerate the surcharge mechanism just given the magnitude of the inflation here?

Well, to the first part of your question, I mean, yes, we've really seen some acceleration in transition from truckload to intermodal. I think that started probably earlier in the year just with the tightened market with shippers looking for capacity. We started to see that. Then it was it March, April, we saw kind of that first spike in fuel. So that kind of kick started. And then here we are again with another increase in the fuel price.

So those things combined, I think, have moved that over from a truckload to an intermodal perspective. We have an intermodal division that's growing ourselves. That's a one-stop shop that we can provide that service in our brokerage division, not as large as some of the other players out there, but a very quality product.

And it's important to note, Ravi, that we're solution-oriented with large enterprise customers. So when they're trying to navigate fuel volatility or tariffs or other things, we have other offerings in our portfolio to where we can address how to solve problems in the supply chain.

Got it. I think that was a very comprehensive unpacking of kind of what we see in the environment right now. I want to spend some time thinking of the long term as well because autonomous trucking has been a topic that has really come up the investor interest curve for us this year.

You guys are doing a lot of work there. So maybe unpack for us kind of what have you done so far when it comes to autonomous, what your current partnerships are, kind of what have you found, what's working well, what still needs to improve?

Yes. So I would say we were early in this. We joke about how early on we were going to see autonomous companies wearing disguises because we didn't want people to know that we were kicking the tires, so to speak, on the autonomous because of a fear of driver flight.

And the louder carrier -- there's a theory that the louder carrier is about interest in autonomous, the more skittish your drivers get. We've been loud with our driver fleet. We've got a driver town hall in Fontana tomorrow, and I'll say this to them tomorrow that even if the bull case of autonomous takes flight, that we will need more drivers next year and 10 years from now than we have right now.

And so it's an additive to the portfolio story. And we've been saying that to drivers for years and years, and our drivers are now overall pretty comfortable with that as -- I can't speak for 10,000 drivers all at once, but pretty comfortable with that.

So the strategy is right now, we're partnering with several autonomous companies. We think we're with the leaders of the pack. And right now, we're brokering freight to them. So in the truck typically is a safety driver behind the wheel, not driving, an engineer in the jump seat for data purposes, and then the truck is driving itself for 99 or-plus percent of the trip. That's the usual model right now.

I sat through your fireside this morning with Chris Urmson from Aurora, and Chris talked about how the shift from TAS to DAS, so driver as a service is what our vision is, too, that eventually we'll get to fully driver out and that will be the solution that we will start to use.

The question is at what scale? I know that's part of what's baked into your question and how soon. There are a lot of unknowns there. So the economics in your report -- it's not your report, who wrote it?

Well, Nancy.

Nancy wrote the report. You get credit for it, but Nancy is a wrote the report. Yes. We know how that works. So Nancy's great report is a great starting point for having the conversation about the economics. We believe, Werner, we believe that the economics are not that favorable to Autonomous right now, and you and I had a conversation in the hall about some of those factors.

But it is great to get something on paper to start talking about where do we have a disagreement. And by the way, if Aurora was in the room, we've had those conversations with Aurora directly as well. That's one piece of the economics, probably the biggest.

The next piece is the insurance and claims side. So there are some things that are crystal clear. If the software fails and causes an accident, the autonomous companies across the board have said, we'll take care of that. If the Werner or the carrier did something to cause the accident, of course, that's our problem.

There's a lot of gray between those 2 that we have to figure out before anybody would go to scale or at least any publicly traded company would be able to go with this at scale. We're having those conversations with the AV companies. It's just not as maybe linear as it might sound. If you think -- I could probably come up with every example of an accident.

I'd love to sit down with somebody who thinks they can do that because we can come up with 1,000 more than what you can think of. And we have to have some agreement in advance of where is the line because the last thing that we need is a plaintiff lawyer suing an AV company and Werner with 2 deep pockets sitting in front of them and Werner and whoever, the -- I'll say, Aurora, fighting over who's at fault because that just drives up the verdict.

So we need to get this stuff sorted out in advance. There's other components. I'll give you the last one so we can move to another topic. But the infrastructure at the beginning point and the endpoint, it's not -- again, you and I talked about this briefly, but it's not that the truck has to go all the way to the destination, but it's got to get somewhere better than just to an exit ramp.

And where is the infrastructure, the real estate infrastructure or the people infrastructure at the beginning and endpoint to unhook the truck from the trailer or hook it up or do a pre-trip or do a post trip or any of the other things that have to happen, there's -- that has to get figured out, too.

And I'm not sure that, that costs back to economics not sure that cost is baked in enough. But it's something we're excited about, and I should have started here. The technology is the real deal. Like if anybody wants to say, I can't believe that a truck can actually do all the things that these companies say, the truck can do it. We're 100% bought in on that.

Got it. First of all, that was an incredibly thoughtful response and you guys are in the weeds on this. So thank you for that. Maybe one follow-up here kind of as a sell-sider, I think in very simplistic terms, let us assume that all of those friction points are friction points. Let us for now put them in the category of dotting eyes and crossing keys. Let's say, at some point, let's not figure out the time frame, you figure all that out. What does this mean for your business 3 years, 5 years, 10 years from now?

Yes. So again, it would be a part of our growth strategy. So it's not -- it would not be to replace drivers that are currently in our fleet. It would be to grow the fleet with that as an additional component. It would be to improve drivers' experiences.

So a driver who currently is on a long haul, that autonomous can do the long haul and they can do a little bit of more what looks like dedicated or even dray work at the origin destination, great.

They get home more often. They get to see their kids' soccer games more often. That's a high-quality job close to their home, great, let's do that. It's really an and proposition. And in 3 to 5 years, we can see that having an impact.

Now an impact that is transformative to the business, honestly, no. But 3 to 5 years from now is we'll blink and we'll be there. And 10 years ago, people were saying, I don't believe that autonomous will ever get there. And I just got done saying that technology is the real deal.

So it's going to be an exciting 3 to 5 years. And again, the safety case has been proven over and over again by the companies.

Got it. That's super helpful. Any questions from the audience? Nancy is going to want to talk about her core report again.

Yes, we can move on from my report. I had a quick question on M&A. I know the First Fleet integration is tracking well, even a bit ahead of plan. How has that changed your appetite for further M&A? Are there any segments that you're looking to augment? Any commentary around that would be great.

Good question. Obviously, we have enough to focus on with First Fleet optimizing value. It's going well, but we have more to do. So that has our attention. But you also can't control when other quality opportunities are coming to market. I think more are coming to market. We have -- we've seen an elevated volume of just inbound inquiries even if within 30 seconds, we determined that, that's nothing that we're interested in.

Still, the volume is up. We also know potential opportunities that might meet some criteria that could be coming to market or are held by private equity and maybe beyond a normal hold period. So there's pent-up demand.

There's opportunities that will be coming to market as this market improves. We can't control that timing. And so we'll continue to balance that and evaluate those opportunities.

FirstFleet is a great proof point for us of what checks the boxes, a strategic fit, a cultural fit and one that we can continue to grow revenue synergies, cost synergies. It meets the return thresholds that we had, and we feel like we had achieved a very good value with it being accretive on day 1 and just more value to optimize from there.

So where we can find additional opportunities like that, for sure, those could be opportunities we would be interested in as well as other opportunities in asset-light where they've got technology, especially in a particular vertical, opportunities that complement what we're doing in Mexico, cross-border, Dedicated final mile. So we'll continue to be aware, engaged and evaluate opportunities, but we're going to be disciplined and selective along the way.

Chris, really quick, let's talk about your actual fleet, CapEx needs, CapEx plans, growth versus replacement versus emissions regs kind of how are you thinking about that '26 and '27?

Real short answer. Obviously, our CapEx is elevated in '26. It's really coming more weighted here in the second half. That's all aimed for the most part of reducing average age that's on tractors, that's helpful for the P&L. It's helpful for drivers. It's helpful for customers.

Reinvesting in the business is a priority, and we'll continue to prioritize that from a capital allocation perspective.

Sounds good. We appreciate our time. So gentlemen, thank you so much. Obviously, a fascinating time, both from a cycle perspective and from a long-term perspective. So excited to see what happens here.

Thank you so much everybody.

Great. Next up, we have on enterprises and very happy to have with us President and CEO -- CFO, Chris Wikoff. President and COO, Nathan Mesker; and SVP of Pricing and Strategic Planning, Chris Neil. I hope all that, right? Gentlemen, thanks so much for joining us. Obviously, the cycle has taken precedence in terms of the kind of the topic majeure. So maybe start off by giving us a sense of how has 2026 progressed relative to your expectations? Where are we right now? And kind of what kind of visibility do you guys have for the rest of the year? .

Sure. Maybe I'll start on that. Thanks again, Ravi, for having us. Good to be here and a 10-year conference again. Overall, I mean, from our view, the headline of the market would be continued momentum that we've seen so far this year in terms of just overall market fundamentals -- the fundamentals are strong. The better balance between supply and demand is helpful. For us, it all translates. I mean, a number of different metrics that we can point to, but really, it all translates to rate. I know there's been a focus and maybe some over-indexing on more recent spot rates being a little bit softer, debate on, is that seasonal? Or is that subseasonal it's a data point, but when we're talking about rate, we're really talking about overall blended rate, contractual rates that continue to be high single digits, low double digits in terms of contract renewals. So all of that is positive. It's more supply-driven. We think that's going to continue. Enforcement has been multipronged. It's also maturing. So not to deep dive into that right now. But while it's supply-driven, the freight flows continue to be a positive study. We're seeing higher bid volume and some record highs on bid volume and dedicated. -- some continued elevated many bids in 1 way as I think shippers are transitioning from spot and evaluating the market and transitioning to more to contract and some of that in-between space. So overall, I think it's positive. Not much to point to in terms of demand outside some of the tech and data center build out. But overall, I think the fundamentals are strong despite the fact that it's more supply driven. .

Got it. That is great to hear. Maybe to unpack that a little bit. My next question was about the seasonality, kind of what we saw in the late summer kind of that lull, if you will, in some of the data again, do you think that's largely seasonal? Or do you think there's something else going on? .

I think some of it is seasonal. As I said, I think there's going to be ebbs and flows to spot as in a tighter market, shippers who have had a slice of their supply chain that's been

All right. Welcome, everyone, to Deutsche Bank's Industrials Conference for 2026. I'm Richa Harnain. I head up the Equity Research Transportation franchise here. So very pleased to have Werner Enterprises with us today. Derek Leathers, Chairman and CEO; along with Chris Wikoff, CFO; and Chris Neil who heads up the IR effort along with a number of other responsibilities.

Thank you for the full suite here. And yes, maybe we could jump right in, and I'll start with you, Derek.

Perhaps you can start with level setting on where we are in the cycle. You seemed very constructive on your earnings call a few days ago. And so just yes, I wanted to hear more on kind of what cars the market is deploying you before we talk about specific strategies that Werner is implementing around that framework.

Let's start with the supply side. You used the term early innings to describe where we are with respect to some of the recent initiatives on capacity and cleaning that up. Can you just elaborate there on what makes you think we're so early, what could be next, et cetera?

Yes, sure. There's a lot there, but I'll certainly take a look at it. Where we're at, obviously, is we are in -- we're in the turn now versus like the pending turn. I think supply -- it's been a supply-driven turn, which is different than what we've seen historically. Usually, when these kind of tightening events happen, it's driven by upticks in demand. This one has been supply led with a lot of the attrition that's been taking place.

I used early innings because I think it's a -- there's a multifaceted level of enforcement going on. Everybody -- I think most of the focus has been on the non-domiciled CDL and people kind of have a belief that, well, these will fade out over this sort of expiration time line that's been widely publicized over the next, call it, now we're down to probably more like a year to 15 months. But the reality is there's a lot more going on than that.

And so when I say early innings is because I'm speaking to everything from what we're seeing with -- start at the beginning of the funnel, right, the schools and school networks around the country where they're actually going in and validating that these schools are, in fact, training drivers versus just issuing training certificates. They've closed out -- well, they removed about 10,000 schools from the Federal Registry already. They've closed down approaching 850, 900 schools at this point. That's -- as that school closure rate continues, that tightens supply even further, but it should be tightened if you're not actually training these drivers.

By contrast, for instance, we've had 9 of our schools audited and came out of those audits with very, very flying colors, like almost like 0 defect across the 9 schools. And so we're comfortable that what we're doing is trying to train drivers the right way.

On the electronic logging side, which has probably got the least attention, I think that's where a lot of my earlier innings comments come from. They've stopped 400 -- nearly 500 at this point, new entrants into the marketplace because the ELDs didn't pass the basic kind of sniff test of certification and they were too easily able to be edited or manipulated.

They've taken many of the existing ELD providers out, but there's a lot more of that, that needs to happen. So at the starting point of all this, there was over 1,000 electronic logging companies registered in the United States. By contrast, 90% of market share in Canada is done by about 9 companies. And really 2 to 3 of those companies have the bulk of that, and that's because they don't allow self-certification. And so as we start going down a path of more government oversight of electronic logging, which should exist in our view, seldom as this industry ask for regulation. But in this case, they need to be certifying these electronic logging devices.

You're going to see a lot more capacity that's only able to operate today because of its ability to manipulate it hours. The reason the market was so saturated was instead of 10 trucks, we're able to behave like 15. And so as you take those 10 trucks out, you're really taking the equivalent capacity of 15 trucks out because you can't operate with these extra hours and kind of reset your logs on a daily basis. So it's kind of the combination of all of that.

And then other legs of that stool are things like we're seeing increased interest in cabotage enforcement for the first time in many years, and that needs to exist. So these are B1 drivers crossing the border into the U.S. by law, they should deliver, have to pick up and remote and go back immediately to the country they came from.

In reality, we know from CBP data that they were spending 21 to 27 days in the United States on average for every trip, which means they're not just hauling that trip, they're hauling 4 or 5 trips while in the country. And so with proper enforcement techniques that are still in the early innings of rolling out, more of this will be captured. And as it gets captured in caught and therefore, removed, I think the supply side tightening continues to strengthen.

And then the last statement is just all of the above is done without any real demand impetus. And I think there's a lot of positive reasons to believe that demand is going to continue -- if worst case kind of stay stable, but more likely case as we get into the latter half of the year is Christmas is still going to come. Peak season is still going to be a reality. You're going to see demand inflection. And when that happens, combined with increased enforcement, I think the tightening gets much more significant.

Yes. I want to get into the demand side. But just real quick, on the supply side, you talked about maybe October, some budget increases that could help the government sort of enact some of these increased enforcement actions. Like just -- I know you're very much involved in that process. So what are you hearing there? What could come?

Yes. I mean from the federal motor carrier safety side and DOT, they kind of work October to October from a budgeting perspective. So whether it's new monies or just reallocated monies that they can -- they have access to increase their efforts. And so it's -- I don't want to get too specific on the stats because I might misquote them. But from an order of magnitude, the budget for FMCSA is about $1 billion. FAA is -- I believe it's $36 billion or $37 billion, like -- and the different -- and the order of magnitude of who you have to try to manage and keep safe in FMCSA, is 10x what you have to do on the aviation side in terms of number of entities you're trying to manage and enforce compliance on.

And so they need more funding. But whether they get more funding or not, I've been assured they have the available resources, and they will only get more resources as they're able to go through this new allocation process post October, which will increase enforcement.

Okay. Very good. All right. So let's shift gears to the demand side. On your call, you talked about like lean inventory levels in retail. I believe you characterized customer feedback generally as being fairly positive heading into the fall. Yes. So just discuss that more. What are your customers telling you? And how are you feeling about the demand setup for Werner into peak? I know you said there will definitely be a Christmas, things like that, but yes...

Yes. I mean because of our outsized exposure to retail, we keep a very close eye on retail inventories and what's happening at the retail level. You can't really broad brush it, obviously, because every retailer is in a little bit of a different situation. But as we look across our network of customers, what we see is that they've kind of -- the COVID hangover is over. They've got inventories either where they want them or in many cases, even a little leaner than their long-term historical run rate. Some of that's efficiencies on their part.

But regardless of that, what it really means is they're in a replenishment mode. And so as we see the consumer resiliency staying stronger than I would have honestly expected at this point. And you see retailers adapting to the consumers' behavior, which is to be a little more frugal, a little more thoughtful with their spend, winning retailers are winning. And that's who we do business with.

We're heavily exposed in discount retail. We're heavily exposed into folks that are catering to that sort of more thoughtful, more prudent consumer. And so we're pretty optimistic as we look into the peak. Obviously, it's early in peak season discussions. But what we're hearing, what we're seeing leads us to believe that we'll be back to a more normalized peak kind of activity this fall. And that bodes really well with the setup for us to be able to do what we do, which is to provide solutions at scale to retailers that are built around peak season and do so effectively.

What does that mean, Derek, normalized peak? Like what is that relative to what you had last year? How much greater?

Well, last year started to approach from a volume perspective, like what looked and felt a little more normal than we've seen in a few years, but the market conditions weren't right for the pricing to be reflective of how difficult peak season work is.

So in other words, it wasn't quite the opportunity to be rewarded for how difficult what we pull off is during peak season. This season is shaping up to be more both normalized in volume, but also in the pricing capabilities that we've displayed. If you go back, you have to go back to like the COVID years and even prior to see the kind of lift that's expected during peak season based on the complexity that comes along with those solutions that we provide.

And just how does inflation influence your thinking? Like, right, you talked about how the consumer has been pretty resilient, thoughtful, but resilient. And then even on the regulatory side, inflation is becoming a hotter topic with what's happening in the [ miles ], what it means to energy prices and things.

Do you feel like there's any sort of hesitation from the administration to endorse some of these because there are -- these policies to cut capacity because they are inflationary or because it's about safety, it is getting bipartisan buy-in and you feel good about sustainability of both demand and supply in light of inflation?

Well, I think you mentioned earlier that I stay pretty close to the ongoing in D.C. And I do. And one of the reasons I do is exactly to your question. I've early on had some concerns that there might be some willingness or some ability or desire to trade off enforcement for what could be inflationary pressures on truck pricing or transportation pricing.

The messages we've received have been loud and clear, there is no trade-off for safety, like they're unwilling to bend on anything that's safety related. And the facts support that this has been a less safe environment over the last several years. This influx of capacity operating outside of the rules has clearly demonstrated a negative impact on safety on America's roadways.

If you look at all the largest well-capitalized carriers in America, we're at 2025 or in some cases, historic lows in accident per million miles and yet the industry has shown an increase in some of these accidents per million mile metrics as well as fatalities on America's roadways. That's unacceptable. And if all the largest players are getting safer and safer, yet the whole industry metric is moving up, there's only one reason that's happening, and that's because of some of this influx. So they're laser-focused on cleaning it up, and they've shown no desire to make a trade-off, and I feel confident they're going to continue.

The last thing I would just say is I think it's a bit -- it's a little bit overblown when people think about it from an inflationary impact because trans, just the trans portion of product cost is somewhere in that 3%, 3.5%, 3.7% range. So even if that number rose by 25%, you're talking about a pretty minimal impact on the cost of goods, and they've already demonstrated the ability to mitigate much larger impacts than that with tariffs and other things without it sorting through to end customer inflation.

So I think they'll get creative on their side to hold that out of the cost of goods. We're going to -- we deserve need and are going to do a request to be paid fairly for our services. The industry hasn't been reinvestable in several years, and it's time that we get -- we have to get back to the health that we need to be able to reinvest in this business.

And on the demand side, inflation hasn't really been...

Yes. I mean I think it changes consumer behavior. We see a lot of -- we see consumers trade down in the choice of goods, but they're still -- we're in the very consumer-centric, perishable nondiscretionary categories. They're going to buy that stuff. They might buy a different quality of it, but it still takes the same amount of space in the trailer. So whether it's private label or name brand, it consumes the same amount of space in our trailer. And so we've seen volumes hold up very well with some of our core retailers.

I'm going off a few tangents because you talk really fast. So I think it can squeeze in a couple more questions. All right. So maybe just marrying those 2 things, right, supply/demand. I mean, you're already seeing some very solid rate recovery. One-Way revenue per truck per week growth was the strongest you said in like a decade, right? Dedicated legacy revenue per truck per week up high single digits.

I know a lot of the progress was just by like lower truck count, too, and I do want to get into that some of the company-specific stuff you're doing. But maybe looking out, you raised your outlook for rate. What's it really going to take to get to the high end of your outlook of 5% for Dedicated? you're already at 3% in the first half. Supply/demand look poised to improve from here. Peak looks good. So tell us, yes, what gets you to your target, what needs to happen to exceed it? Maybe, Chris, do you want to take that?

Yes, sure. So just to be clear, for the listeners on, I think, what you're referring to, you're referring to Dedicated revenue per truck per week guide that we raised to 3% to 5%. So you're right.

For the first half of the year, we were up 3%. For the second quarter year-over-year, Dedicated revenue per truck per week was up 5% just on our organic business, given that we did have an acquisition of FirstFleet at the end of January that was all 100% within our Dedicated portfolio.

On an organic basis, we were up closer to 8% on a year-over-year basis. So what's driving that? And what -- how does that play into having confidence of this 3% to 5% range for the full year on a year-over-year basis? I mean one points to the contractual rate renewals, which in Dedicated, we're seeing low to mid-single-digit rate renewals.

There's also a utility and a production improvement aspect that can drive up revenue per truck per week. We're seeing that both in One-Way given our One-Way restructuring that we talked about the last couple of quarters, but not just in One Way, we're also seeing that in Dedicated, in part, given the improved density that really came with the FirstFleet acquisition, largely being more Southeast concentrated.

So with that density, which we're still settling into, given that the second quarter was the first full quarter of having that acquisition as part of the portfolio, that density allows us to utilize the assets in Dedicated just more productively, more efficiently, and in essence, able to support the same reliability requirements and same volume for our dedicated customers with less assets.

So both of those are contributing to both the overall and the organic number that we saw in the second quarter and gives us confidence of that getting within that 3% to 5% guide for the full year.

Okay. And then just are you satisfied with like low to mid-single-digit rate renewals in Dedicated? Or do you think like just given what we're seeing in the spot market, like should we continue to expect acceleration from there?

Well, one thing I would just point out there to start is the Dedicated starting point is in a much healthier position than where One-Way was. And so the role it can play in getting the overall back into the double-digit long-term range that we've talked about, we're able to -- we can push that dedicated portfolio forward without asking for sort of outsized increases.

But understand like any of the stuff, it's an average. So there are fleets that are absolutely in more need than that, and there are fleets on the other end of the spectrum that might be very healthy. And what we're really looking for is more efficiency in that fleet. It doesn't have to come through rate.

So like Chris stated, you can do a lot of things with revenue per truck per week that doesn't have to impact the customer from a rate per mile perspective or rate per day perspective because we simply sweat the asset more. And we're able to do that and still get those -- that increased revenue to the bottom line quicker.

So there's a lot of ways to move dedicated. I know it's the hardest thing for folks to really wrap their mind around unless they're inside the business and looking at it every day. But to kind of bluntly answer your question, we're going to ask for what we need on a customer-by-customer basis, and we -- and all of that is with the aspiration to get the business back to reinvestable levels, which includes getting TTS to double-digit margins.

Okay. So that's what you meant the double-digit

Yes.

Okay. Cool. So let's talk about the shape of the recovery. You talked about depressed July trends. I think you said it was the second weakest month of the year. Like I know there's been a lot of consternation in the market around maybe the seasonal slowdown that we've been seeing. Does it feel normal to you at this point?

And do you think -- how do you think the back half sort of builds as it relates to momentum? When do we start to see trends kind of come back from maybe the August to the summer lows, if you will.

Yes. I mean I think a few things, right? I think the market is very skittish right now, to say the least. And so the reaction or overreaction to any data point seems to be at all-time highs. If you look at July, this -- first of all, my comment about July being the second weakest month of the year was an industry comment. That's like industry-wide, if you just look through history, July is a seasonally slow month it always has been. You come off the 4th of July hangover kind of holiday, everybody kind of slows down what's happening out there.

Automotive always takes a big drop down in July, they have for decades. A lot of reasons why tonnage slows down in July. But rejection rates are still hovering at or near 14%. I mean that's very high levels. Anything north of 10% is a very tight market indicator. Spot rates have settled some, but they settled off of a rate that increased more rapidly and to higher highs than we've seen in any of the prior cycles in terms of its pace of acceleration. So there's always going to be a temporary moment. It's a matter of when does it come.

But I would just tell you, like in our network, in our conversations, in our dialogue, there's nothing but increased momentum, there's no other indications other than increased positivity, increased momentum and probably most importantly, increased acceptance from the shipper community that this is real, and it's here to stay, enforcement and other activities that are taking place are going to continue to keep a pretty decent lid on the supply side for a while. And as we get closer into the fall peak, it's just going to get tighter from here.

So there's no concerns, if you will, from my perspective about with some of these little snippets of news that we've seen in July.

You have a dedicated portfolio, you have a One-Way portfolio. Are you seeing this the flow go more to one place than the other? Like is there more of a drive to dedicated given that maybe you have more long-term sort of capacity? Or do you think people are more willing to commit to one way and see what happens?

Well, I think this stuff happens in waves, right? So we're at the -- I'll go back to the early innings like in the early innings of a turn like this, the first thing you see is a tremendous amount of freight that's in the spot market or has been in the spot market that's looking to find a home in contract. And shippers are quickly trying to pull it back, rebid it, mini bid it and get it into contract. And that's where all of their focus is because it limits their immediate pain and the immediate exposure that they have in spot. And so that's been ongoing. It's only picking up in pace.

The volume of that type of activity seems to increase week over week over week. The secondary wave is when they start to look for long-term security or long-term safety via dedicated. And what we'll do is we'll have the same disciplined approach there that we have traditionally, which is if it's truly dedicated, so it's driver involved, complicated freight with potentially even specialized equipment. That's the kind of stuff we want to see in land and Dedicated. It's stickier. It's long term. Once you have it, you keep it not just for a year or 2, but often for decades.

The other stuff that's really -- it's One-Way business that they're trying to package up and put into a continuous move format, we have interest in that. We're going to be looking at those and bidding those. That kind of freight will reside in our One-Way network because that's really what it is.

And someday, when this turn sees its way through the other end, that always gets unbundled and redistributed and put back into the spot market eventually. And so we want to house that where we think it belongs. But we'll be disciplined there. And we're going to stick within One-Way to kind of the 3 big pillars of cross-border Mexico, expedited freight and then some of this -- the verticals around pharma, medical and health care in general because those are areas that we think are closely aligned with very high service expectations, more complexity than general One-Way freight and things where we can build a real relationship over the long haul.

And Richa, it might be worth just clarifying, particularly for the listener, I mean, the basis of your question, we have leaned more into Dedicated in terms of being a growing mix of our overall TTS business, the Truckload Transportation Services business.

More recently, total TTS tractor fleet being around 8,700 trucks, but Dedicated being about 80% of them or about 7,000 trucks. So we are more heavily weighted on the Dedicated side, particularly with the FirstFleet acquisition. So yes, rational question of where do we look to grow. We like the benefits that come with Dedicated, everything that Derek said of it just being more difficult to serve with large complex shippers, but it comes with benefits of being a more integrated partner with our customers, long-term sticky contracts, roundtrip billable miles. And there's a higher expectation around reliability, which is becoming more and more valuable right now for the shipper, but that also comes with more of a premium and just the durability of those long-term highly integrated type of contracts and partnership.

But on the One-Way side, because of the restructuring that we've talked about the last couple of quarters, which in the second quarter was really showing some very strong proof points with raising margins over 700 basis points year-over-year, revenue per truck that I think you were alluded to earlier, which surged almost 30% up year-over-year. So that's showing a lot of benefit. And in the second quarter, we were wrapping up that restructuring.

Some of the slower pace of hiring just delayed some of reseating some of those trucks as we moved assets out of certain markets and into more profitable markets as part of restructuring. So my point with all this is there can still be some growth in One-Way, even though we're more weighted on the Dedicated side, there can still be some more growth in One-Way as we continue to reseat those trucks and really settle into the post restructuring environment of One-Way, which is really showing to be a strong contributor to expanding TTS margins.

Okay. And part of that restructuring, I know your fleet count or you had 18% fewer trucks in One-Way and a lower legacy Dedicated count, too, right? How much...

Sequential basis, yes.

On a sequential basis, how much of that influenced the headline rate figures I referenced earlier? And just like what are the key underpinnings of why fleet declining? When can we get to a point of fleet growth?

Yes. So yes, the 18% of One-Way being smaller fleet, that's Q1 to Q2. So that was expected as part of the overall One-Way restructuring effort, which may have been a noisy narrative over the last couple of quarters. But again, I think the proof points have been really strong in the second quarter.

So really at the core of it, what One-Way restructuring was aimed at was moving towards higher-performing freight with customers and markets that just have greater upside as the market tightens and coupled with some operational and structural changes that maximize production. So of the about 28% increase in revenue per truck per week, about 16% of that was from production improvement, more miles per truck, longer length of haul, more team-oriented type of freight.

And then the rest of it was in double-digit revenue per total mile improvement, essentially rate improvement. So really a combination of maximizing some tightening of the market, but also benefiting from some operational and structural changes.

So does all of that contribute to those better metrics? Yes, absolutely. That was the intent, and it was a significant contributor to our ability for the overall segment TTS for us to be able to nearly double operating margins Q1 to Q2 in TTS and on a year-over-year basis with One-Way restructuring being a big enabler to do that.

The FirstFleet acquisition was highly accretive, so that helped. Also insurance and claims being meaningfully down year-over-year, that helped. But the One-Way restructuring was a very large contributor to margin expansion in the quarter.

And the only thing I would add is to maybe get right to the heart of, I think, what you mean or what you're looking for in your question is we didn't get that rate by just yielding off a bunch of freight because we shrank the fleet. Like that's not what happened. I would -- and some counterpoints to that would be this.

Like in addition to the rate that we got in Q2 year-over-year, I would point out that our length of haul actually increased nearly 100 miles or right at about 100 miles. That generally brings the rates down when you go longer length of haul, rates go lower per mile. And so that was a counterweight to the progress that we were still able to show.

But possibly the bigger thing in all of that is that as we went through the restructuring and we had to level set where we wanted our network to be and where those trucks would exist, what it forced us to unfortunately not be able to do is benefit nearly as much in Q2 from the spot market itself. So our exposure in the spot market in Q2 was about half what it was in Q2 of the prior year.

So with half the exposure on a percent basis, even less than half on a pure miles basis, we were able to produce the 10% plus rate per mile lift. As we've now stabilized that fleet, so it's not going to -- we're not looking to continue to shrink it. Now we have jobs advertised in markets where we want to stay and want to be and we're able to reseat and grow from there.

It becomes much more of an interesting dynamic relative to rates because you are able to, in fact, get a normalized amount of your fleet exposed into the spot market while also settling in on these new lanes and then working to find even increased productivity gains as we get better at the lanes that we are now settling into. And so there's a lot of optimism in the building about how we can continue to tweak this going forward, but it must also begin with the shrinking is over, like we have to -- now we have to start to grow from here.

And as you're going to be more -- it sounds like much more thoughtful about the growth that you target with the assets you have, you kind of referenced earlier like not all Dedicated is equal, right? Like you want to be in the right sort of Dedicated. Maybe talk about like the competitive dynamics and sort of the areas you want to compete in and what makes you more well positioned to win most to the competition?

Yes, sure. I mean it starts with we want to work with large enterprise-type customers that have scale, whereby if you win a Dedicated fleet at a site and you do a really good job, that organically leads to site 2, 3, 4, 5 over time and you end up able to sell deeper into the portfolio.

There's more cross-selling opportunities to other products we have because you're so entrenched and dedicated, and that's a long-term relationship. The characteristics of stuff where it's often driver involved freight. So our driver is doing a lot more than just being a truck driver. He's actually participating at the store level with deliveries into the back room. In some cases, they have access to the delivery locations. They can do night deliveries, unattended deliveries, things like that.

We like it when it's really truly dedicated from a service expectation. So I often say 98% in One-Way service levels will get you carrier of the year every time and it will get you fired and dedicated and because the expectation is that much higher. And so that's harder to haul, more driver involved, more tech involved in terms of the routing and optimization to build and model these fleets. That's the kind of work we like doing.

If it happens to require specialized equipment, in many cases, even better because it's even more difficult from a capital perspective once you're in, you're able to perform for that customer for many, many years.

It's going to be more tailored -- you still want to be heavy in Dedicated, like or can it also be in One-Way?

Yes, I think you'll see growth on both sides of the ledger. Dedicated will be decision by decision, fleet by fleet, opportunity by opportunity. That's why it's always the hardest to put a number on where you think you'll be. I can tell you the pipeline in Dedicated is very, very strong right now.

The question of what gets through the other end of the pipe based on our pickiness and our pricing discipline, that will always be a bit of a TBD, but we have multiple fleets that we know are coming or implementing in the back half of the year, and we're excited about that.

On One-Way, it's really a matter of having gone through a very difficult restructuring. And as Chris mentioned, oftentimes when you move those trucks and assets, the driver is not moving with it. And so we lost some drivers through this process. And now we're stabilized and able to reset.

You scared us.

He should maybe okay. I think, also for the...

Yes, go ahead on...

Over the long haul. So longer term, I think as Chris mentioned, we've been leaning into Dedicated more over the last decade, obviously, much, much larger. But I think dedicated share gain over the course of the next 5 to 10 years is probably going to be significant.

So as we talk about where we're going to assets. I just mentioned that whether it's in One-Way in the short term or Dedicated, there's opportunities for both. But I think it's important as you think about the landscape to think about dedicated being a position -- a place where there will be share gain to carriers of scale with reliability process. I think that's something that we thought about for a while and why we think a dedicated floor over the last 5, 10 years.

And is driver availability a gating factor coming up more and more. How is that....

Yes. I mean it's certainly going to be a tough driver market out there. There's no doubt about that. There's drivers -- there's plenty of people that have CEOs out there. The question is, are they able to be vetted? Are they able to meet the strict safety and regulatory requirements that we're looking for in our fleet. But we're pretty uniquely positioned. I mean when you have 3/4 of the jobs you're out there trying to recruit for or in Dedicated where they're home nightly or home multiple times a week, that's an attractive job.

They're also coupled with pay packages that are generally above average compared to like a One-Way alternative. And so it's better pay, better lifestyle. So all the way around, that's the job they're looking for. And so we like that. We love the fact that we've got our own driver school network that produces very high-quality drivers, and we have tons of metrics to compare drivers coming out of our schools and their safety standards and their retention, maintenance cost, everything across the board, they're coming out ready to drive and to do a really good job we put them with a trainer and we finish them with another, call it, 3 to 5 weeks of additional oversight and training to prepare them even further.

So we know how to do this, and we know in a tight driver market that, that's something that -- I would call it like a net tailwind. The driver market will be a headwind, but it's a net tailwind relative vis-a-vis our competitors based on some of the job offerings we have as well as the infrastructure we've previously built around our driver schools.

And in the third quarter, the pace of hiring as well as the trend line on retention, both of those are improving in the third quarter relative to the second quarter. So that's helpful. And as those things go, so will go the fleet in terms of opportunity for growth in the second half. And as we sit here today, the TTS fleet is up versus where we ended the second quarter.

Okay. And are you seeing any sort of trend of like owner operators in One-Way, maybe having a more difficult time, like you said, there's maybe flight to quality almost. Are those carriers just finding it really hard to secure freight on their own and they're choosing to drive more with Werner? Is that happening yet?

Yes. I mean I think that's part of the evolution, like I talked about different waves of thinking, right? So early on after Montgomery, I found it interesting because I thought the -- a lot of the online commentary, especially from owner-operator type community was cheering from the mountain top thinking it was awesome that this ruling came out, and I thought kind of the opposite for them.

I thought I was worried for them because it's going to be very difficult to vet an individual owner operator in this new world that we're in post Montgomery. And I think a more logical step is that you're going to find a lot of them looking for -- when they come to that conclusion on their own, it's going to take some time.

But I think they're going to need to come and find shelter inside of larger fleets and operating as an owner operator with carriers like Werner. We are certainly gearing up for that and have seen some early success, but it's very early and the numbers are immaterial at this point. But we want to have a welcome home for those high-quality drivers that we can bring into our own fleet, make sure that we do the additional vetting that we need, wrap them up in our own safety and other programs where they can participate and we can make sure that we're putting an asset out there we can be proud of.

And even though rates have improved, your margins are up a lot. I know you also monitor the competitive landscape quite closely. The small carriers, maybe not just owner operators, but more like the middle tier. Are they still struggling because of like things like insurance and getting the lows? Or are they benefiting from this rate environment that now we're seeing more of a recovery in terms of financial?

Well, I think to the extent that they're able to and participate within the spot market, they're seeing some rate relief like everybody else is. But they have a lot of -- I mean there's a lot of carriers that are still in a very precarious situation after the last 3.5, 4 years we've been through, many of which aren't going to make it still.

And so I mentioned on the call that it's not just enforcement. I do think we're going to continue to see some attrition across the small and medium size because of the position they were put in for 3.5 years of really kind of the Wild West out there in many respects. And so that's unfortunate. Hopefully, they can make it. I hate seeing 4 and 5 decade-old companies going under, and we saw way too much of that over the last couple of years.

All right. So let's talk about profitability improvement opportunity. I think, Chris, on the last call, you gave us some pretty pointed thoughts on what to expect in terms of margin expansion into next quarter and year-end. Maybe remind us of what those were and discuss the key drivers of that, which are in your control, so things aside from the cycles we talked about and sort of how to think about contribution of the various items.

Yes. First, we can talk more on a consolidated basis, and then we can talk individually about the TTS segment and logistics. But overall, prior to the second quarter, the 3 quarters prior to that, so second half of last year and the first quarter of this year, consolidated adjusted operating income margins was roughly around 1.5%.

In the second quarter, it doubled. It was right around 3%, so 150 basis point increase. What we said on the last call is that, that type of a trend, that ZIP code could be possible as we go from Q2 to Q3, so continuing to expand margins. And then as we progress through the entire second half and the rest of the year, it's our expectation that we'll continue to expand margins and be approaching on a consolidated basis, more of the mid-single digits as we exit '26 and enter into 2027. So that's on a consolidated basis, now kind of what's happening underneath that.

From a TTS perspective, revenue lift ongoing in the second half given further rate improvement from renewals. The productivity gains that we're seeing will also be helpful in terms of revenue per truck in both One-Way and the Dedicated. So that will be helpful. Some modest fleet growth from a revenue perspective. And then on the bottom line, obviously, a lot of that rate improvement and production improvement goes right to the bottom line. As we're modestly growing the fleet, particularly in Dedicated, as we add trucks to existing fleet, that comes at a higher contribution margin. So all those help to contribute to expand margin in TTS.

Plus we anticipate second half of the year, we will have an improved gains on the sale of used equipment, a better second half versus the first half. And we have $18 million of synergies that we've targeted for the FirstFleet acquisition and the ability to expand margins 300 basis points over the course of, call it, 1.5 years, but that's well underway. It's ahead of schedule. There's $7 million that we believe we will be realizing out of that $18 million in this current year 2026, the majority of that in the second half.

So all of those are compounding for TTS and gives us confidence in our ability to continue to expand margins there. In the second half, we were right at mid-single-digit operating margins in TTS, 5.5%, and we expect to be up to the right over the next couple of quarters.

From a logistics perspective, more pressure on margins, particularly in brokerage in the first half of the year, just given the volatility and spike in spot rates and just the impact on our purchase transportation costs in a brokerage environment for us that's more weighted towards contract type of freight. So less ability to be as agile on the sell side as the purchase transportation costs were increasing at a rapid pace.

We knew that was temporary. It was temporary. As we came into the third quarter, those margins were meaningfully improving. We're talking like an improvement versus second quarter of 300, maybe upwards of 400 basis points. So when you just extrapolate that across the overall segment, that gives us confidence of getting back to positive adjusted operating income margins in the second half. So certainly, second half versus first half will be a contributor to margin expansion just given the brokerage margins improvement.

What's the remaining versus...

Yes, we've talked for many quarters for quite some time now of confidence that we have of getting back to low double-digit margins for TTS. So your question was overall Werner, but TTS, 2/3 of our portfolio, 5.5% in the second quarter, but a pathway back to low double-digit margins at the mid-cycle. And the bridge to get there, so call it that additional 600 to 700 basis points from where we are at today is a combination of market help, meaning further rate improvement, some demand improvement in Dedicated, where we're adding trucks at a higher contribution margin and then also the improvement in the sale of used equipment and better gains, which the last several quarters, 6 to 8 quarters, gains have been in a 40 to 50 basis points as a percentage of revenue.

But in normal mid-cycle and peak years, that's more to the tune of 150 to 200 basis points. So gain normalization alone on used equipment could contribute 150 basis points by itself. So all of that in kind of the market help side. But then there's self-help, what we're doing in production that should continue. What we're doing on the FirstFleet synergies that's very much on track and will be -- continue to be more and more accretive.

The cost discipline that we've shown in the past years, coupled with more technology-enabled synergies and cost savings as we go forward. When we think about our technology transformation journey, which we're well into over the last 2 or 3 years, we're later innings on kind of the build of the tech stack, but I think we're in early innings of the synergies to come from technology.

So multiple piece parts to get there, but we've continued quarter after quarter to challenge ourselves internally on that pathway back to low double digits. And because of that, we continue to have confidence that that's where we should land at the mid-cycle.

Chris, how quickly do you think you can get there? And do you feel like mid-cycle -- you said at the mid-cycle, you kind of want to be there. Do you think the mid-cycle could be more like further out because the cycle could be longer?

I don't think we're at the mid-cycle today. I don't think we're going to be at the mid-cycle between now and the end of 2026. Could we be at mid-cycle in 2027? Yes, very possible. I think it is going to be an elongated up cycle for all the reasons where we started this conversation of it's supply driven. That's going to continue.

The enforcement is going to continue to ramp, and we really haven't even gotten into the demand side of things. Maybe that's on the horizon with where ISM has been now for 7 consecutive months and the July report that just came out being much more constructive than June and I think at a 4-year high in terms of the ISM, PMI manufacturing index. So some constructive things on the horizon from a demand standpoint, as we said earlier, but not yet reflecting in tonnage or in freight. So I think that's more upside as we go into 2027.

So when do you think you -- when would you be happy if you get to a double-digit margin?

I would expect that there's good opportunity for us to get there in 2027. And we'll be narrowing that gap over the next 5 or 6 months as we close out 2026.

I think just to frame that a little bit, just remind everybody that we're 2/3 of the way through the first bid cycle since the start of a turn that wasn't clearly turning at the first part of the year. So like it only takes a couple of cycles -- we got to get through a couple of cycles, but I agree with Chris. I think it's in the cards, and we've got a lot of work to do. A lot of work to do to do that, but I think it's in the cards in 2027. But we need to at least get through one full bid cycle and start the second one to be able to have more confidence to be able to answer that more clearly.

When is -- when do you think is the starting point on the next bid cycle officially because I know everything is kind of fluid.

Yes, it's interesting because we'll still be finishing 2026 stuff up in Q3 and Q4 and yet 2027 and not widespread, but in select cases, will already be kicking off. So this fall, you'll already see certain select 2027 bids like coming to market. And I think the other opportunity that's just very robust right now is regardless of any of that, the mini bid reality, the reality of people finding freight coming back to their desk that they thought was covered through prior bids that isn't actually covered because of attrition, because of enforcement, because of whatever the case may be, we're seeing a high scale or high volume of that type of activity, and I expect that will just continue as we go forward.

Were you the one that said maybe we shouldn't call them mini bids anymore or something because they're always -- it just feels like normal course of business now.

I don't think that was me, but I think -- but I concur with the thought.

So maybe we touch on a lot of the topics I had on my list. But I guess on the Montgomery situation, you talked about the positive influence that's had on your business, the flight to quality. And you successfully fought your own nuclear verdicts. I'm switching to this lupus case, by the way, and how it's impacted CAH. Yes, you fought your own nuclear verdict in recent years. I'm sure you feel for the Robinson team.

But just talk to us more about the implications for your business. You do have a brokerage arm, and it does rely on third-party operators where you don't have explicit control over that carrier safety standard. So how do you deal with this risk? And what do you think about like insurance renewals and things like that? Is that a risk for you?

Yes. I mean I think it's -- look, it's a new world that we're dealing with post-Montgomery and then obviously, the verdict that just took place recently. I mean the biggest thing we need to continue to focus on is making sure we have the best-in-class vetting and very significant oversight to our brokerage operation. We're continuously evolving that. And I would just tell -- remind folks that as the technology improves, and I don't mean just ours, I mean, third-party technology that's out there improves, it's our ability to access that technology and put it to work.

And so our ability to vet is improving all the time. We believe that the Montgomery decision was going to go the way it went. So we had significant work underway throughout this entire year to reexamine and rechallenge whether there was any better tech that could do more for us on the vetting side. We feel like we're in really good shape, but it's a never-ending battle, like we have to continue to iterate on all of the above to make sure that we're doing the best -- putting our best foot forward every day relative to vetting.

In general, as I sit here today, I feel like we're in a pretty good spot, but we've got to continue to work at it. On the shipper side, I think there's clearly been a market reaction to Montgomery and also the Texas verdict where size matters. I talked on the call about assets matter. Assets matter, size matters. Those things matter, and they want to work with folks that not just have the safety record and the performance data that we can demonstrate to them and the vetting processes that we can demonstrate to them, but they also want the scale and the size of the balance sheet.

I mean they want to make sure that they're not working with somebody that's going to put their business at risk the first time they have an accident because there is no insulation between them and the ultimate plaintiff. Our job is to, obviously, first and foremost, and we talk about it all the time, nothing we do is worth getting hurt or hurting others. That has to be how we live and breathe every day. So we've got to continue to try to drive accidents lower.

But when and if they happen, we've got to make sure that we've got the right structure from an insurance perspective, and we've got to make sure that we have the right ability to weather that storm and stand up and respond to whatever that tragedy might be. Yes, I do feel for CAH. I do think these nuclear verdicts continue to get out of hand. And I do believe we're going to wake up in a world of $30 egg someday if we don't get it under control. But there's a lot of work that's being done to try to figure out what is the best practice, how do we deem a carrier safe.

It would be really nice if we live in a world where an organization that exists called Federal Motor Carrier Safety Administration was able to also clearly then label a carrier as safer unsafe. We're not in that world today. Like we need clarity, and we're going to continue to push for that out of FMCSA and DOT.

Any questions in the room before we wrap?

Just one -- why is logistics still under...

Yes, the margin pressure in brokerage was the biggest factor in the first half. And so now that, that is real time correcting over the last several weeks. I mean, early into July, it was already correcting meaningfully compared to the second quarter. So that's going to be very helpful.

On the intermodal side, which is growing double digits, but there also was some margin pressure just with some higher fuel cost that was not necessarily being passed on to the customer in the second quarter, some higher drayage costs. So those are some aspects that are now improving. So that will also help.

But overall, we're still targeting low to mid-single in terms of kind of aspirational margins for the overall Logistics segment. just working through, and I think we're on the other side of those brokerage margins as well as some volume drop in our PowerLink or power-only fleet, which we're in the process of building back as well.

And the insurance cost premiums rising impacting...

Well, I think they're going to rise for everybody as a whole, just like on the asset side, ours have risen modestly compared to the rest of the industry. I think it's going to be the same on the brokerage side. We have those policies in place. I think it's the smaller carriers where they're not only going to see significant premium increases, but there's wholesale policies that they don't even have that they have to go after at a time where they're really backed into a quarter into a corner and going to be forced to take a big bite in order to secure these policies to stay viable as much as possible as a small broker.

We kept you for longer than I said. But thank you so much and get to see you at next meeting. Thank you for being here.

Thanks for having us.

Good afternoon, and welcome to the Werner Enterprises Second Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Chris Neil, SVP of Pricing and Strategic Planning. Please go ahead.

Good afternoon, everyone. Earlier today, we issued our earnings release with our second quarter results. The release and a supplemental presentation are available in the Investors section of our website at werner.com.

Today's webcast is being recorded and will be available for replay later today. Please see the disclosure statement on Slide 2 of the presentation, as well as the disclaimers in our earnings release related to forward-looking statements.

Today's remarks contain forward-looking statements that may involve risks, uncertainties, and other factors that could cause actual results to differ materially. The company reports results using non-GAAP measures, which we believe provides additional information for investors to help facilitate the comparison of past and present performance. A reconciliation to the most directly comparable GAAP measures is included in the tables attached to the earnings release and in the appendix of the slide presentation.

On today's call with me are Derek Leathers, Chairman and CEO; and Chris Wikoff, Executive Vice President, CFO and Treasurer. I will now turn the call over to Derek.

Thank you, Chris, and good afternoon, everyone. We appreciate you joining us today. In the second quarter, we delivered 24% revenue growth and 80 basis points of adjusted operating margin expansion. Throughout this prolonged downturn, we stayed focused on safety, streamlined our operations, invested in technology, and expanded our portfolio and end markets. These strong second quarter results show that our strategy is working, especially as the broader market starts moving in our direction.

The structural capacity attrition we've been talking about for several quarters is playing out as predicted. This tightness is being driven by intensifying regulatory pressure, specifically around nondomiciled CDLs, English language proficiency, and cabotage enforcement. On top of that, there has also been a sharp reduction in ELD providers, with approximately 1-third exiting or having their certifications revoked. This reduction in ELD options is dismantling shadow capacity and compounding structural supply contractions.

Increased enforcement, along with the recent Montgomery verdict, has resulted in shippers and brokers taking an even more cautious view of who they do business with. That plays directly into Werner's strengths given our strong track record and reputation and validates our strategic direction.

Our core technology initiatives continue to progress. 100% of Werner's legacy freight is now being ingested into our single Werner EDGE TMS platform, creating better visibility for our associates, expanding solutions for our customers, and establishing the foundation for increased automation.

We continue to see measurable benefits from AI and automated workflows across shipment optimization, load planning, maintenance, safety, and driver recruiting. While many of these initiatives remain in the early stages, others are already delivering meaningful results in areas such as road breakdown support, carrier payments, and appointment scheduling. Our focus is now on scaling the most successful use cases across the enterprise to drive further operational efficiencies and structural cost savings through the remainder of this year and into 2027.

In short, the structural improvements and portfolio management decisions we've made over the past few years are gaining momentum. Our ability to anticipate these supply shifts, execute our restructuring plan, and add FirstFleet to our Dedicated business gives us clear line of sight to sustained earnings growth and validates our strategic direction. We are building a leaner, more resilient portfolio that is spring-loaded for this upcycle, and we are increasingly confident in our ability to maximize fleet utilization and deliver a more pronounced step-up in our financial results as we move into the second half of the year.

Turning to Slide 5, let's discuss our second quarter highlights in more detail. In One-Way Truckload, our recent restructuring efforts over the past 2 quarters are delivering tangible results. Revenue per truck per week growth is the strongest we've delivered in the last decade, driven by exceptional productivity improvement, coupled with a double-digit increase in revenue per total mile.

Recently, we have been securing upper-single- to double-digit contractual increases in One-Way bids, in addition to ongoing yield management within the portfolio where appropriate. As a result, adjusted One-Way Truckload OI margins improved over 700 basis points year-over-year. More benefit will be realized in the second half from recent repriced business and increasing spot exposure.

Our Dedicated business remains a resilient cornerstone of Werner's portfolio. We've delivered customer retention of over 95% and been successful in securing rate increases on renewals. Dedicated bid activity has been increasing as the One-Way market tightens and more shippers search for long-term reliable capacity. Dedicated bid volume in the second quarter was the highest of any quarter since 2020. Revenue per truck per week reached the strongest year-over-year improvement since the third quarter of 2022.

Overall, these results showcase the value customers place on the high service and reliability at scale that our Dedicated solution provides. It has now been 6 months since we acquired FirstFleet. I'm pleased to report that the business is progressing very well. Continuity with drivers, associates, and customers has been outstanding, and synergy realization is ahead of schedule.

Given FirstFleet's strong service and customer relationships, we've achieved a 98% renewal rate on over 80% of the portfolio that is renewed so far. We expect similar results on the remaining fleets scheduled to renew in Q3 and Q4.

And lastly, while the spike in spot rates during the second quarter put further margin pressure on our Logistics business, we remain proactively engaged with customers and are focused on resetting to higher contract rates. As a result, we expect Logistics margins to improve as the year progresses. As a large asset-backed brokerage company with high-quality standards and a mature vetting process, we expect added momentum from shippers looking to consolidate around larger asset-backed brokers following the Montgomery ruling.

Before Chris discusses our financial results in more detail, let's move to Slide 7 to summarize our current market outlook for the remainder of the year. First, while we are encouraged to see the supply-driven market recovery strengthening, as discussed at the outset of the call, the reality is that carrier exits are still in the early innings. Enforcement efforts are continuing. And in our view, greater agency collaboration and exchange of data, combined with utilization of technology, will further accelerate enforcement from here.

Long-haul truckload employment has dropped to below pre-COVID levels. Upward pressure on fuel, insurance, and equipment replacement costs will also force additional capacity off the road, reinforcing a highly favorable supply environment. Tender rejections remain elevated relative to recent years. This, combined with an anticipation for further capacity attrition plus peak volumes, points to ongoing rate lift through the remainder of the year. And with a predominantly supply-side-driven turn to this point, any demand improvement would lead to even greater market momentum.

Looking beyond some of the headline noise from such things as elevated fuel prices and interest rates, household balance sheets remain resilient but mixed. Budget pressures on lower-income consumers continue to drive value-seeking behavior, which bodes particularly well for our mix being more concentrated in discount and value retailers, grocery, and nondiscretionary freight. Lean retail inventories position demand to eventually play a larger role in the recovery. While trade policy may impact restocking timing, nondiscretionary replenishment provides a buffer against near-term volatility.

As expected and previously communicated, our gains on the sale of used equipment in Q2 were lower sequentially and year-over-year. However, we continue to expect used truck values to improve in the second half of the year. Increased supply from enforcement is likely offset by OEM manufacturing constraints, aging fleets, and higher-priced 2027 engines, supporting demand for high-quality used equipment.

Regarding driver availability, competition for high-quality drivers has increased. However, Werner is well positioned given our vertically integrated Roadmaster school network. While not immune from the market environment, our Dedicated exposure offers predictable roles with frequent home time that, in turn, attracts top-tier drivers. We are also using AI to increase recruiting capacity and allow our teams to focus on higher-value interactions with candidates and more effectively match candidates with regional demand.

With that, I'll turn it over to Chris to discuss our second quarter results in more detail.

Thank you, Derek, and good afternoon, everyone. We'll continue on slide 9. All performance comparisons here are year-over-year unless otherwise noted.

Second quarter revenues totaled $934 million, up 24%. Adjusted operating income was $27.6 million, up 67%, and adjusted operating margin was 3.0%, an increase of 80 basis points. Adjusted EPS of $0.22 was up $0.14. Consolidated gains on sale of property and equipment totaled $1.5 million, down from $5.9 million in the prior-year period and $3.8 million in the first quarter. Lower gains negatively impacted adjusted EPS by $0.05.

Our GAAP and non-GAAP results for the quarter include certain nonrecurring items, the vast majority of which relate to M&A and restructuring. 45% of the pretax adjustments are related to the FirstFleet acquisition, and 43% relate to costs in connection with our One-Way restructuring. We do not expect further One-Way restructuring expenses going forward. M&A costs will continue as a result of ongoing integration efforts, but to a lesser degree.

Turning to Slide 10. Truckload Transportation Services total revenue for the quarter was $703 million, up 36%. Revenues net of fuel surcharges increased 26% year-over-year at $582 million. TTS adjusted operating income was $32.3 million. Adjusted operating margin net of fuel was 5.5%, an increase of 270 basis points in spite of significantly lower gains. Excluding gains in both periods, operating income margins improved 370 basis points.

The year-over-year improvement was driven from accretive results from the addition of FirstFleet, profitability improvement in One-Way Truckload, and lower insurance and claims expense for our legacy business.

After an impressive 45% year-over-year decline in the first quarter in DOT preventable accidents per million miles, we realized a similar year-over-year decline in the second quarter. As a result, insurance and claims expense was at its lowest level since the third quarter of 2024, excluding FirstFleet and excluding the one-time benefit last year related to the reversal of a 2018 nuclear verdict.

Our ongoing decline in preventable accidents is a direct result of deliberate actions and upgrades across our business. We've made ongoing investments in tech-enabled safety, tools, and equipment that give our drivers and our fleet and safety leaders more actionable insights so they can identify and manage risk earlier. We've also enhanced our driver training, safety programs, and onboarding experience that sets high standards from day 1. By equipping our drivers with better equipment, tools, and training, we are building a safer, more efficient fleet.

Our fleet metrics are on Slide 11. TTS average trucks totaled 8,712 for the quarter, a 16% increase. The TTS fleet ended the quarter at 8,695 trucks, down 4% sequentially. Truck additions from FirstFleet were offset by slightly lower legacy Dedicated trucks and fewer One-Way trucks.

Within TTS, in our Dedicated business for the second quarter, trucking revenue net of fuel was $434 million, up 51%. Dedicated represented 76% of TTS trucking revenue, up from 64% a year ago. At quarter end, the Dedicated fleet was up 2,110 trucks from where we started the year, a 44% increase from year-end with the addition of FirstFleet.

Dedicated average trucks increased 44% year-over-year and 10% sequentially. Dedicated represented 80% of the TTS trucks at quarter end. Dedicated customers are expanding existing fleets, and we continue to have success with customers in new verticals. Dedicated revenue per truck per week rose 5.4% this quarter, though impacted by the addition of FirstFleet in the mix. On a stand-alone basis, Werner's legacy Dedicated fleet delivered an 8% increase year-over-year due to better productivity and higher contract rate renewals.

In connection with FirstFleet, we have realized over $3 million in savings year-to-date, resulting in over 100 basis points of margin improvement. We've implemented actions representing approximately $9 million in annual cost savings, of which over $7 million will be realized in 2026, exceeding our earlier target. We are on track toward our total synergy goal of $18 million.

In our One-Way business for the second quarter, our strategic restructuring plan is driving tangible results. Trucking revenue net of fuel decreased by 16% to $138 million. As Derek already mentioned, One-Way adjusted operating income margin in the second quarter grew more than 700 basis points year-over-year as a result of the double-digit increases in several key metrics.

Revenue per truck per week increased 27.7%. Miles per truck increased 15.7%, and revenues per total mile increased 10.4%. With approximately 60% of the One-Way portfolio repriced in the first half at higher rates, we expect further bottom line benefit in subsequent quarters.

From a fleet size perspective, Q2 represented our first full quarter following the conclusion of our One-Way restructuring efforts. Average trucks declined 34% year-over-year to 1,736 trucks. Sequentially, the average fleet reduced by 18% and was down 386 trucks. Increased driver hiring constraints have limited the speed and pace of driver rehiring after we've repositioned assets as part of the restructuring efforts. More recently, our pace of hiring is improving, coupled with deliberate driver retention tools and initiatives.

Overall, our One-Way Truckload operation is more profitable, more productive, and more specialized in geographies of choice. One-Way is now contributing nicely to TTS margin expansion. And given the surge in One-Way revenue per truck per week of nearly 28%, TTS also experienced outsized revenue per truck per week growth, increasing 9% year-over-year, the largest quarterly increase for TTS since the third quarter of 2018.

Logistics results are shown on Slide 12. In the second quarter, Logistics revenue was $212 million, representing 23% of total second quarter revenues. Revenues decreased 4% year-over-year but increased 8% sequentially. Truckload Logistics revenues, which represented 72% of total Logistics revenues, decreased 10% on 29% fewer shipments, partially offset by 26% higher revenue per load.

Mix change between truckload brokerage and PowerLink was also a driving factor on year-over-year revenue. Brokerage volumes were lower due to actions to protect yield while downward pressure persisted in our PowerLink fleet. Higher purchased transportation costs reduced segment gross margin by 260 basis points. Truckload brokerage bore the greatest margin pressure due to the pace of buy-side rate volatility. April and May were the most challenging. June gross margins improved and represented the highest margin of the quarter.

While Truckload Logistics revenues declined and margins were pressured, revenues in Intermodal and Final Mile grew double digits. Intermodal revenues, accounting for roughly 16% of the Logistics segment, rose by 18%, driven by a 17% increase in load volume and a 2% increase in revenue per load. Final Mile revenues, which comprise the remaining 12% of the segment, increased 14% year-over-year and 13% sequentially. Adjusted operating margin for the Logistics segment was negative 1.3%, a 400-basis-point decline driven primarily by the gross margin pressure in Truckload Logistics.

Let's review our cash flow and liquidity on Slide 13. In the second quarter, we generated very strong operating cash flow, which enabled us to retire nearly half of the additional debt we took on in the first quarter as a result of the acquisition of FirstFleet. Operating cash flow was $85 million, up 84% year-over-year and comparable to the first quarter of this year. Our second quarter net CapEx was net proceeds of nearly $10 million. As a result, second quarter free cash flow was $94 million, or 10% of total revenues.

Similarly, on a year-to-date basis, net CapEx is a net proceeds of nearly $8 million, and free cash flow is $176 million, or 10% of first-half revenues. Net CapEx for the first half of 2026 was nearly $66 million lower year-over-year, primarily due to several largely one-time factors, including selling more equipment and buying less following our One-Way restructuring, modest incremental use of operating leases, and declining technology-related capital spending as we near completion of building the technology stack for our future.

Total liquidity at quarter end was $657 million, including $57 million of cash on hand and $600 million of combined availability under our credit facilities. We ended the quarter with $841 million in debt, consisting of $48 million in assumed low-cost capital leases from the FirstFleet acquisition and $793 million on our credit facilities. Net debt decreased $86 million sequentially and is up $111 million from a year earlier.

Covenant-defined pro forma net leverage at the end of the quarter was 2.0x, including pro forma synergies and trailing 12 months of FirstFleet results. We continue to have a strong balance sheet, access to low-cost capital, and no near-term maturities in our credit facilities.

Let's turn to Slide 14. When it comes to broad capital allocation decisions, we will remain balanced over the long term, strategically investing in the business, returning capital to shareholders, and maintaining appropriate leverage. With the acquisition of FirstFleet, our focus in 2026 will continue to be on integrating the business, gaining momentum on realizing $18 million of targeted synergies, and enhancing value.

On Slide 15, let's review our guidance for the year. We are updating our guidance to reflect the significant productivity improvement that we are realizing with our assets. At the same time, there are currently fewer quality drivers available across the industry. As we go into the second half, we will continue leaning into productivity enhancements while also ensuring we maintain an excellent driver experience.

Dedicated revenue per truck per week increased 5.4% year-over-year and is up 3.1% year-to-date compared to the prior-year period. We are raising our full year guidance from a range of flat-to-up 3% to up 3% to 5%. We have been successful securing low- to mid-single-digit increases in contract renewals for both our legacy Dedicated fleet and the FirstFleet business, while asset productivity has improved with greater density from the addition of FirstFleet.

One-Way Truckload revenue per total mile guidance for the third quarter is up 10% to 13% year-over-year. Second quarter was up 10.4%. We expect ongoing pricing improvement as more contract renewals become effective and as peak projects and freight surface later in the year. We are revising our full year average truck fleet guidance from a range of up 23% to 28% to a range of up 16% to 18%. A portion of our previously anticipated growth in the second half is likely delayed beyond year-end, in part from further production gains across TTS, coupled with a slower pace of driver hiring. Average TTS trucks ended the quarter up 3% sequentially and increased 16% year-over-year.

We are raising our full year 2026 net CapEx guidance from $185 million to $225 million to $215 million to $250 million. The average age of our truck and trailer fleet at the end of second quarter was 3 years and 6.3 years, respectively. The higher CapEx will accelerate fleet modernization and reduce average age of our tractor fleet. The increase also reflects a strategic prebuy of certain 2026 model year tractors ahead of the 2027 emission standards. These investments are expected to improve reliability, lower repair and maintenance costs, enhance driver satisfaction and customer service, and support higher equipment gains in future years.

Our effective tax rate in the second quarter was 27.3%, including certain discrete items. We are maintaining our full year 2026 guidance range of between 25.5% and 26.5%. Regarding other modeling assumptions, we expect net interest expense this year will be between $40 million and $45 million. We anticipate increasing demand for quality used equipment and expect increasing resale values through the end of 2026, given OEM production constraints and the evolving regulatory backdrop that will be an incentive towards high-quality used assets. We are narrowing our anticipated gains on sale of used equipment and revenue-generating assets for the year from a range of $8 million to $18 million to a range of $10 million to $14 million. Our gains for the first half of the year are $5.2 million.

With that, I'll turn it back to Derek.

Thank you, Chris. In the second quarter, we saw a clear improvement from the actions we have taken. We're seeing early signs from the recovery beginning to translate into our results, and we are certainly not taking our foot off the throttle when it comes to continuing to drive improved results through the remainder of the year and into next year.

With that, let's open it up for questions.

The first question will come from Bascome Majors with Stephens.

This is Reed Seay on for Bascome. You mentioned talking about getting -- I think you said low- to mid-single-digit increases on your Dedicated business. Did I hear that right? And why is that not moving higher as we move through the rest of the year?

Yes, Reed. When we talked about low- to mid-single-digit increases, we were talking about One-Way contract renewals, if that's what you're speaking to, relative to what we're seeing from a price perspective. We did raise our guide on Dedicated revenue per truck per week from the prior guidance, which was flat to 3%, up to 3% to 5%. We are seeing progress in both Dedicated and One-Way. But I guess if you have a more specific question, I could certainly speak to it. In general, the market continues to strengthen, and cooperation with customers relative to securing reliable, sustainable capacity are ongoing.

And then if we could just touch on the impact from the latest court ruling when C.H. Robinson was ruled an employer of a carrier that they employed. Can you talk about how you expect that to impact your Logistics business and where that could go in terms of costs, and how that could impact the market as a whole?

Yes. I guess I'll start by saying given that they have ongoing litigation and have already talked about an appeal, I don't want to get into the weeds on their case as I'm not an expert. I will tell you that the verdict that took place in that particular case -- the verdict amount I'm speaking to -- simply shines yet another light on the risks that are out there. We, in advance of Montgomery -- the original C.H. ruling -- in advance of that case in the Supreme Court, had doubled down our efforts on our vetting processes, our carrier qualifications team, and the use of a trilateral set of systems that we use to vet carriers to put ourselves in the best possible position.

We're going to continue to lean into compliance everywhere we can and solid vetting from a customer perspective. I think the response has varied. Most customers do view this as a legitimate risk and a concern that's at the forefront. We've seen conversations convert quickly from price to quality and reliability. That bodes well both for our asset business as well as, as we continue to try to lead from the front on the Logistics side relative to our vetting processes. So there'll be ongoing dialog.

I think it's going to become interesting as this all continues to play out. Obviously, I have heartburn with the verdict itself, just given the margin level business that we're in, both in Logistics and in Truckload, and the amounts that continue to increase verdict after verdict. But right now, my focus is on this organization and making sure this organization is putting forth a high-quality product and doing everything we can to put safety at the forefront.

The next question will come from Eric Morgan with Barclays.

I wanted to ask one on supply. Derek, you noted we're several quarters into the regulatory enforcement actions. I think we're a year or so since the -- we first started hearing about English Language Proficiency. But you said we're still in the early innings. So I know you ran through a few of the initiatives being pursued by the regulators. But I guess I was curious if you could provide some thoughts on what the remaining innings might look like from here, and maybe how material is what's to come relative to what we've already seen. And, yes, I guess, just what that means for pricing on the market.

Yes, sure. I'll take a swing at that. So we're about a 1-year anniversary really since ELP became front of mind. And in that year, the conversation started around English Language Proficiency. Predominantly, that's led to out-of-service violations and 27,000-plus drivers now being put out of service for various violations of English Language Proficiency.

But it quickly advanced to what I'm referring to as it relates to more technical approaches. When you start now looking across the landscape of 550 fraudulent CDL schools being shut down at this point, nearly 10,000 CDL schools being removed from the registry, 700-plus carrier -- high-risk carrier investigations that have taken place over the last 12 months, and then just overall a more widespread enforcement and honestly, just acknowledgment of how significant the problem is.

What lies in front of us is the ability for FMCSA to have better inter-agency cooperation agreements in place with CBP and others, the ability to layer technology on top of what has largely up to now been a boots-on-the-ground approach, and instead use technology -- the new MOTUS system -- which has had some interruptions in its launch, but still is a huge step forward from what we had before from a carrier registration perspective.

And then just the fiscal reality of the government operates on October to October budget. And we know that there's some funding available as they renew that budget this October to bring more resources to bear. All of that collectively just paints the environment that it's circling the wagon, so to speak, on bad actors out there. It needs to be done. The motoring public deserves that level of enforcement.

We're going to continue to be a highly compliant carrier and do everything in our power to lower accident rates, even after having just posted a really strong first half of the year from an accident per million miles perspective. But I think you're going to continue to see folks shut down. Just looking at the 700-plus high-risk investigations as an example, 400-plus voluntarily agreed to cease operations, 60 to 70 more were shut down actively by the government, 3,200 visa revocations as they look now at the V-1 Visa issue, and some of the cabotage stuff that's tied to that. And there's just ongoing efforts relative to auditing CDL issuance and making sure things are done in compliance with federal regulations.

So it's going to be a build. It's going to continue to build from here. I think third inning-ish right now is where we're at, and there's still going to be significantly more capacity removed from the road between now and the end of the year. And frankly, it will probably take into the early parts of next year.

The next question will come from Tom Wadewitz with UBS.

This is Mike Triano on for Tom. So you mentioned Dedicated bid activity is at multiyear highs, but drivers seem to be constraining and pushing out that growth to 2027. So I was just wondering if you're seeing the pipeline of trainees in your driver school network pick up at all just since the beginning of the year. And then, I guess related to that, how does potentially raising driver pay address this issue?

Yes. Thank you for the question. Yes, Dedicated bid activity is very robust right now. We want to be careful and selective. We want to make sure it's truly Dedicated driver-involved multi-stop work that stands the test of time. It isn't just a capacity play, trying to look for shelter in a very turbulent One-Way market.

As we do that and work our way through that, we also have to work with our current customers relative to repricing, where repricing is the right answer, to make sure we can guarantee that ongoing supply of capacity that we're providing. So far, those conversations have gone well. We've also raised our guide relative to revenue per truck per week. That's driven a lot by backhaul opportunities, the ability to eliminate more empty miles, and some of the density that came with the FirstFleet operation.

On the driver question, clearly, qualified driver hires are more difficult as we look forward. That market is tightening. Our schools are playing an active role in producing high-quality drivers into the network. And when I say ours, I mean both our vertically integrated Roadmaster schools as well as our Tier 1 collection of schools that we work with around the country.

We've also ramped up efforts relative to experienced hires and are seeing some benefits on that front relative to the lucrative type of jobs we already have within our walls. One of the advantages of being 80% Dedicated is those don't just pay better, but they often have better lifestyles associated to them as well, and repetitive routes that drivers really covet. And so, we're making more inroads with some of the experienced driver population as part of the solution.

And then where applicable, we're working with customers, and again, 80% of it is Dedicated. So we work directly with the customer in a one-to- one relationship on targeted driver pay increases where that's the right answer. But lifestyle still matters, quality of equipment still matters, and basically the confidence in the job, being one that gets them to and through to home with high levels of frequency, matters a great deal. And so we've got the right jobs to be positioning in the market today, and we're going to continue to lean into that.

Just a follow-up on, I guess, the Dedicated fleet growth. Is there any amount contemplated in the full year guide for second half just in terms of sequential growth from 2Q?

Overall, Mike, I would say for the TTS fleet guide, there is some modest fleet growth that's in that number. Obviously, we've pared back the average year-over-year fleet from the previously 23% to 28% to the 16% to 18%. So there's still some lift to go in that number.

Part of what's bringing that down is a combination of seeing some incremental production gains across the fleet, not just from the One-Way restructuring, but also in Dedicated, which has favorable bottom line implications, essentially providing the same level of reliability and service to Dedicated customers with fewer assets, particularly with the added density from FirstFleet.

But also, as you're alluding to, the slower pace of driver hiring has also brought that down. As a reminder, with the One-Way restructuring, we had to reposition some assets into different geographies and therefore reseat drivers, all at a time when the labor market is tightening. And so that was -- it's really a delay of growth, not lost opportunity, as we can make some further headway with recruiting and retention efforts, which is getting more positive in the third quarter relative to the second quarter, that will lead to more fleet growth through the end of the year and into 2027.

The next question will come from Bruce Chan with Stifel.

This is Matt Milask on for Bruce. I guess to start with respect to demand, curious how the freight trends progressed throughout the quarter, April through June, and whether it's strengthening perhaps into July. Whether you see any customers pulling some freight forward due to tariffs or inventory rebuilding, and to what extent customers are preparing for a more robust peak season this year relative to years past?

Yes, Matt. Throughout the quarter, we saw freight continuing to strengthen. And obviously, there were some events that took place in Q2 like Roadcheck and some other enforcement activities that caused even incrementally tighter markets for periods of time.

But in general, everything has been continuing up and to the right relative to overall tightness. I would remind people that July is normally the second weakest month of the year after only February. And so, some of the slight drawback you're seeing in some of the macro data at this point is not of any concern from our long-term outlook.

We still see internally, both with our core customers as well as opportunities in the transactional market, a lot of strength right now. It's still predominantly, we believe, supply-driven, meaning contraction of overall capacity. But customers' optimism as they look into the fall at this point is fairly positive.

We work with a lot of discount and nondiscretionary type retailers. That stuff tends to turn quickly and get replenished quickly. Inventory levels across the retail space are in pretty good shape. Meaning, they're no longer bloated. They're either at or below expectations in most cases. So we know replenishment is going to continue. That also gives some insulation against some of the tariff noise that we faced in 2025 when tariffs were on again, off again, and people were trying to react and, at times, built excess inventories as a blanket or an insulation to that phenomenon. Right now, they don't have that luxury. They're going to have to replenish in order to keep store shelves stocked, and we're positioned well to be able to support them as they go through that.

Peak season overall is shaping up right now positively. Those dialogs will continue, obviously, over the next couple of months. And we expect a more normalized peak season this year than we've seen in years past through a combined impact of both the supply and then, later in the year, the influx of demand into the equation.

That's good color, Derek. And then secondly, on the FirstFleet integration, I know you mentioned that the process has gone very well, including some valuable density gains. Can you tell us where you are versus the original synergy targets? And I guess whether there's been anything unexpected, both to the upside or downside, throughout the process related to cost or revenue retention, anything like that?

Yes, I'll start, and I'll turn it to Chris for some detail. But I'll just tell you, I'll start with the big picture. Like every time you do an acquisition, there's always some risk relative to culture, quality, and just -- is the team what you think that you're getting along with the deal. All of those things have been very, very positive. It's a great organization led by great people that have similar commitments to safety and service above all else, similar to Werner.

We have found the integration from a culture perspective going as well as anything we've done to this point. Both teams are committed. We talk the same languages. We have similar profiles with our Dedicated density. And so it's been really a positive impact, I would say, to the joint organization, if you will.

On the overall synergy targets, we mentioned during the period that we're ahead of schedule where we -- in the opening, we talked about being ahead of schedule where we thought we'd be at this point. I'll turn it to Chris, he can give you some details on where those are coming from and why we feel good about the synergy target.

Yes, Bruce. Just as a reminder, we've talked about the $18 million of synergy target over 18 months, and that would equate to a 300 basis point margin expansion for FirstFleet which would bridge the gap between the FirstFleet adjusted operating income margins compared to our organic Dedicated fleet. So we're making very good progress in that regard.

In the second quarter, we increased FirstFleet margins by over 100 basis points. We did that through $3 million of realized synergies. We've actioned synergies that we believe will equate to $7 million to be realized in the current year 2026, or $9 million on an annualized basis. So we've actioned effectively half of that $18 million target. So things are going very, very well.

We've said before that this acquisition was accretive from day 1. And in the second quarter, it was a top contributor to the EPS year-over-year growth as well as the TTS margin expansion alongside improved insurance gains and alongside the benefits that we realized from the One-Way restructuring.

The next question will come from Ari Rosa with Citigroup.

You guys mentioned there are fewer quality drivers out there. I'm curious just if you could talk about the dynamics between the driver pool for One-Way and the driver pool in the Dedicated market. Has the driver pool in Dedicated actually shrunk? It seemed like at least others have suggested that a lot of the low-cost capacity or low-quality capacity was more in the One-Way market. Just talk about those dynamics, if you would.

And then, Derek, maybe your views on how the cycle plays out. I heard you say we're just in the third inning, but what are your thoughts on capacity coming back into the market? Or what it would take from a wage increase standpoint to draw people into the industry such that we might start to worry a little bit about supply in the normal cycle taking hold?

Yes. So thanks for the question. On Dedicated, I want to be clear, these are the jobs that drivers covet. And so there's only 1 driver pool. Obviously, it's a collective driver pool where people are tugging every day to pull them from one-way to dedicated to private fleets, and we're all fishing in the same ponds essentially. But the jobs they want are those dedicated jobs with high quality of life and high -- and the compensation levels are commensurate also with it being a premium job with premium expectations.

So I like the positioning we have in a market that is becoming tighter on quality drivers. The reality, though, is that because it is all 1 pool, when the one-way market is as hot as it is right now and when spot rates are doing what they're doing, you do see the normal transition where some folks that have been driving as a company driver maybe want to go out and become an owner-operator again and chase spot rates for a while. And so there's going to be a lot of give and take on this.

Our focus is continuing to build larger quantities of higher quality, long-term career type jobs. Our driver pay is actually right now in really good shape. We've got a significant amount of jobs in our network in Dedicated and other places where drivers can earn 6 figures. We have jobs across our network where if we need to make targeted pay adjustments, we will. But again, in Dedicated, those are negotiated with the customer alongside us. If we have difficulties getting that done, then that's a more strategic discussion as to in a limited asset world where those assets need to be deployed. And we need to have that discussion in a very professional way and hopefully find agreement. So we'll continue to work to do that.

The driver schools play a major role in producing high-quality drivers, especially our Roadmaster network. We see better compliance, better retention, better maintenance and better service records with drivers that are coming out of our Roadmaster school or any of our Tier 1 schools that we work with in a partnership basis.

So we've got a lot of solutions in place. We're open-minded to pulling various levers. And as Chris mentioned earlier, as we get into Q3, we've seen the momentum of some of the initiatives that were previously put in place really starting to build, both on driver retention as well as driver hires.

That's great. 6 figures sounds pretty nice. Just for a second question, if I could. I know somebody asked about some of the nuclear verdict impact. And not asking you to opine on C.H. Robinson or anyone else really. I'm just curious to hear your thoughts on for the broader market, where do insurance costs go? I think I, like a lot of people, were alarmed at the size of the awards being given out. Just give your thoughts on like if that's standard, if that's the new normal, if juries are seeing those kinds of numbers as appropriate, what has to happen with insurance costs? And how do carriers, how does the industry adapt?

Yes. Clearly, there is significant pressure on insurers in terms of how do you quantify and try to develop an actuarial for some of these outsized verdicts that are coming out on carriers because we are working diligently every year to continuously lower the frequency of accidents. And if you look at all the major carriers, which also tend to be the ones that get pursued in these cases, they're all at 20, 25 or all-time low in accident rates. So the efforts are working. We are making America's roadways safer, and we're focused on it every day.

But when you cover millions of miles a day over the nation's highways, there will be the accidents that happen. And so the question is, when does -- when do we get more reasonableness in the room as it relates to making sure that we do everything we can to prevent an accident. And when accidents do happen, we also try to do the right thing, lean into it and come to a reasonable outcome.

Where does it go? I think it puts increasing pressure in places that people don't talk about as much. I think small brokers, I'm not sure how they survive the onslaught of this world that we're in today. I worry about the backbone of the industry, honestly, which is the 1-truck, 2-truck, 5-truck carrier. I'm not sure how we, over time, continue to try to vet and utilize what is some of the strongest capacity out there in terms of quality if the new normal is that we've got to have entire safety departments and safety directors and other things inside these organizations when, in fact, what they bring to the table is 20, 30 years of driving history and they're quality people.

So all of us are having to navigate this. Where does it go from here? I think it's yet another lid on capacity to go back to the original question that I failed to answer about how do I see the cycle playing out. It's a tough time right now to try to grow into a good market. I don't think you're going to see a lot of that. I think we've got EPA emissions and engine changes around the corner. They're going to keep a lid on capacity growth. I think we've got a whole lot of margin improvement that needs to take place across the entire industry to make the industry reinvestable before we start talking about trying to grow our way into added trucks.

And I think we have a driver market that is very difficult right now and will stay that way for the foreseeable future as everybody continues to increase their hiring standards, increase their betting standards. And my only hope is that we don't end up with good drivers being left on the outside looking in because of how stringent everybody is trying to become. We have to be careful. We have to be prudent, but we also have to be willing to give people the opportunity to enter a career that at this point can become very, very lucrative and not be carrying $200,000 of college debt along with it.

The next question will come from Ravi Shanker with Morgan Stanley.

So Doug, I'm going to ask you a similar theme question in 2 parts. The first one is, do you think this cycle is going to be structurally different than usual for Dedicated versus One-Way just given the extreme capacity reduction we're seeing? Do you expect shippers to fairly significantly pivot towards Dedicated as we get deeper into this upcycle?

Yes. I think there are some subtle differences tying back to the previous question. I think shippers are probably having some very soul-searching conversations right now about what their own risk tolerance is given the size of some of these verdicts and the idea of private fleet conversion is probably more enticing right now than it's ever been. I think that's 1 thing that's probably a little different.

I think in general, we see in every tightening cycle, a whole lot of capacity fleets being entertained by shippers where they try to build a Dedicated RFP, but it's really One-Way freight just moving around in a quasi repeatable manner. We'll be careful with those. It doesn't mean we don't do those fleets, by the way. It means that we look for the home -- to put them in the home they belong, which would be in One-Way because that's ultimately where they're going to end up when this cycle ever ends up on the other end and capacity may become loose again.

I think structurally, the cycle is different. Just fundamentally, some of the things I've already talked about, early innings of some of the enforcement stuff that I think will continue over the next couple of years. I think the engine issue is real. Having yet untested engines right around the corner, I think it causes people to be extremely cautious about how many of those they're going to want in their fleet in the short term until we have opportunity to test and prove these new technologies. I think the driver market, there's no signs on the horizon that you're going to see a sudden influx of folks coming to the rescue.

And so, there's a lot out there that does make this one feel structurally a little different. But we're way early in this turn for me to be talking about longevity of the turn. But I would just tell you the setup is different than ones I've seen historically. The fact it's supply driven is certainly a different setup right out of the gate.

Got it. And if I can ask the same question on the brokerage side as well. You've addressed Montgomery a couple of times already, but just to nail the point home, are you seeing any signs of shippers moving away from asset-light towards asset-heavy in a post-Montgomery world? And what does that mean for your mix of business and resources between logistics and asset-heavy side?

Yes. The answer to that is a clear yes. Assets matter. Assets are going to continue to matter. Having quality drivers in those trucks and quality assets on the road is going to matter more than ever. We're going to continue to lean into the programs that we have in place. We will -- I'd like to remind everybody, we did a pretty significant structural reset that we now are concluding. And that reset came at certain costs, but it has long-term benefits.

The cost in the short term was the fleet shrank more than we would have probably liked based on the geographies of where those -- where that equipment and those drivers were located versus placing them into the dense lanes with specific focus that we've been talking about for some time, which is cross-border Mexico team expedited and engineered lanes. The benefit is clear. We're talking about increases in both rate per mile that are relatively unprecedented as well as on utilization. The utilization is a sustainable move, we believe, and we're going to continue to try to push utilization even further through these engineered efforts.

So now that the reset is complete, it's our job to build upon it from here. So yes, there will be some growth. But if we can continue to grow miles on existing assets, it both is more beneficial to the bottom line, but it also gives those drivers and those trucks more money in their pocket. And so these drivers are being utilized and staying busy now and eliminating empty miles now in ways that directly benefits them. And so, it's a win-win all the way around. It was just very difficult to get to this point. I'm happy it's behind us. And now we can look forward more optimistically with both a better market, but equally important, a better network setup.

The next question will come from Scott Group with Wolfe Research.

So I just want to understand a little bit the lower fleet guide, but the higher CapEx guide, and especially with -- I think you said you're doing prebuy, but I thought EPA is getting pushed out a little bit. And then maybe just to marry into this conversation to follow up with that last question about customers preferring assets and maybe trying to grow the fleet. Maybe this is out of left field. But Derek, do you ever think about growing the owner-operator fleet as more of an asset-light way to grow the fleet going forward?

Yes. So maybe reverse order, but that's not out of left field, and it is something that we're leaning into more closely as we go forward. We think there's some very high-quality owner operators out there that could benefit from being part of our network, and we are going to work to grow that aspect of our fleet. As we look forward, we'll be prudent about who they are. We're primarily focused on fleets and fleet owners, bringing multiples of trucks onboard via our owner-operator program. And we do think that has legs.

As it relates to the raised CapEx, really ties back to something that's been a central theme of the call. In a tightening driver market. I want to make sure our fleet is in the best possible position as we enter 2027. The fleet age is up a little bit right now. I'll remind everybody that the FirstFleet acquisition alone moved the fleet age by 3/10 of a year. We knew that we were going to have to work through that bubble as we go forward.

We've decided to take some bigger bites quicker in the back half of the year so that our fleet is in the best possible position. That CapEx increase is predominantly replacement, with a little bit of what I would call fringe prebuy, nothing like prebuys of the past. And so I was concerned that there might be an overreaction to the statement. The simple reality is the OEM network this year is going to basically build that capacity somewhere very close to replacement level, and that will be it. And so we are going to partake in a little bit of hedging against the new engine.

You are right, there's some -- I would call it more relief than a delay, Scott. There's relief from the new engine as it relates to the noncompliance penalties and some other things that have been talked about. But sooner or later, it's still coming. And so, the longer we can exist with known technologies at known pricing and freshen our fleet a little bit along the way to create a more attractive environment for the driver population, the better. So it's an all of the above really justification. And really, that CapEx move is pretty minor, and still represents even at its new level, roughly 8% of revenue. So it's not outsized by any stretch.

Yes. And Scott, maybe just to give a little bit more color on that. So this accelerated and higher CapEx, it will also accelerate bringing the average age of that truck fleet down to targeting closer to mid-2s by the end of the year, getting even further lower throughout 2027 is the goal. Obvious benefits on that to have improving reliability, favorably impacting the P&L with lower maintenance and repairs, higher gains, and then, of course, favorability with driver retention.

Derek mentioned that this isn't necessarily an outlier. Even though it's a lift from our initial guide, we still expect to be free cash flow positive for the full year. And as a percentage of revenue, this will be still upper single digits, which is more consistent with our recent trend and well below the trend from years past of, call it, 10% to 13%. So a lot of good reasons for doing it.

Also just to mention that last question on owner-operator, I would just say the high side of that 16% to 18% full year guide on the average fleet growth, the higher side would include not only a better pace of driver hires but also adding some of those owner operators to the fleet. And then at the high side and beyond, also potential for some Dedicated fleet wins of size where there's an incumbent driver pool that we can vet and onboard more quickly.

And then I know you don't like to get too specific around margin guide, but any directional color about how to think about trucking margin Q2 to Q3 and when you think Logistics gets back to profitability?

Yes, sure. So just some maybe broad color, as you say, without us getting too specific. Overall, we would view earnings growth to be at an accelerated pace in the second half in terms of both the adjusted operating income as well as EPS growth. Revenue being steady with some modest incremental TTS fleet growth lift, more trucking revenue given the rate lift and production gains. Truckload Logistics revenue to be steady. The focus there is more on yield and margin focus and ongoing momentum in Intermodal and Final Mile.

From an adjusted operating income standpoint, going from the first quarter to the second quarter, we improved overall consolidated adjusted operating income margin by about 150 basis points. We would see a similar trend continuing Q3 and into Q4, moving towards mid-single digits, given some of the rate and production momentum in TTS as well as higher gains and the Logistics gross margins improving as we move forward.

Interest expense likely lower in the third quarter, given lower debt, elevating again in the fourth quarter, given some of the higher CapEx guide that's largely going to be weighted, obviously, towards the end of the year.

Scott, the only thing I'd add to all of that is that Logistics, I'd just remind folks, we have an outsized exposure in the temperature-controlled environment in our brokerage unit. Obviously, second quarter had a lot going on, both overall capacity, but also just external weather events in terms of basically the heat that swept the country. So a lot of the temp protect, temp control type of freight does come at a higher cost. But most importantly, it was just the capacity -- it was one of the capacity sources that was most difficult to procure during the quarter. We saw gross margin improve every month of the quarter in Q2. And so we would foresee getting that stabilized in Q3 and moving forward from there.

Yes. And furthermore, what we're seeing very recently in July, particularly in the truckload brokerage, is a gross margin per load that's reflective of what we were seeing almost a year ago. So more specifically, that's about a 300 to 400 basis points of lift in gross margin versus what we were seeing in the second quarter. With the truckload brokerage being about 50% of the segment, that could lead to, call it, 150 to 200 basis points of margin lift as we go forward now that we're getting on the other side of this margin pressure.

The next question will come from Jordan Alliger with Goldman Sachs.

Just a couple of quick ones. I know you were talking about productivity miles per truck sustainable. Obviously, a pretty big order of magnitude in the second quarter. Can you maybe give some thoughts or help on the shape of that? Are we talking about a continuation of the year-over-year trend you just saw?

And then I might have missed it, but I know you were talking about fleet growth. I think, beyond this year, but I didn't quite catch your thoughts on Dedicated versus a resumption in potential growth on One-Way on an apples-to-apples basis looking ahead.

Let me start on the production front. The utilization gains we made are directly related to the restructuring that we've just been through. So the focus on 3 key legs of the stool in cross-border Mexico, team expedited, and engineered lanes allows us to build the density required to be able to really put these assets out there and use them productively. It benefits our drivers. It benefits our customers. And obviously, over time, it continues to fall to the bottom line.

We think that we can sustain the gains that we've made. Obviously, we're not going to see the same slope of the curve as we go forward that we've seen up until now just because that is an order of magnitude type gain year-over-year that is pretty unique in the industry. But we're excited about some of the progress we've made, and we believe we can still do a little bit more on that front.

As it relates -- the second part of the question, sorry, was?

Sorry, just on fleet growth after this year, One-Way versus Truck?

Look, I know in a lot of quarters, we've been pretty specific about whether it's Dedicated or One-Way. I think I would caution against that this quarter because the reality is we're in the midst of conversations with customers. We're seeing large-scale mini bids and rebids of routing guides that have blown up.

We are being revisited by customers that maybe felt that the approach we took originally wasn't the right answer for them and now realize the value in it. So we're going to be open-minded. I think the reality is you'll see the opportunity for some marginal growth, both in One-Way and Dedicated. We know that we have multiple Dedicated fleets implementing in the third quarter, but we also have conversations that are yet to be resolved with a few customers in Dedicated. So we'll have to work through those.

We are still honoring the contractual terms of contracts that we have with our customers. We're trying to stand by our customers. What you've seen from a rate perspective wasn't an example of Werner going out and defaulting on agreements with customers and chasing spot rates, but rather it was the old-fashioned way, just finding ways to sweat the assets better, to reengineer and design and restructure our network so that it operates more efficiently, working through contractual rate increases with our customers.

And then honestly, a big component of it is yielding off the bottom where we couldn't come to resolution. So our spot rate exposure right now is no greater this quarter than it was the same quarter a year ago. And as we go forward, we think the opportunity to cement more arrangements into the network that can continue to increase yield are in front of us. And that's why we've changed our guidance both in Dedicated and One-Way relative to revenue per truck per week and rate per mile on the One-Way side.

The final question will come from Chris Wetherbee with Wells Fargo.

It's Rob on for Chris, and appreciate you guys squeezing us in here. Could you give us a sense in terms of -- Derek, you had just been alluding to this a moment ago, the utilization improvements in the second quarter. It's very rare that we get teens utilization improvements. Was this all tied to the restructuring? Or would you attribute some of it to the broader market and some of the AI initiatives? Just curious for your thoughts there.

Yes. I think it's a mix of a lot of things, obviously. But the restructuring is certainly the big horse pulling the wagon, so to speak. What we've done there with a very laser focus is try to -- in a time when basically One-Way had become not just competitive, but unsustainable in its form over the last few years, we made the decision to build something that we think will be sustainable long term.

As part of that caused some short-term pain, as I've talked about, with restructuring of assets and moving of assets and actually shrinking the fleet into a more dense designed network. The good news is that work is behind us. That does lead to the predominance of what you've seen. But clearly, along with that, you have an improving market, which allows better freight choice. And often, that means nearer and better price freight choice to align with that new network. It gives better focus to our sales teams and our account management group and our operators to be able to stay in the lanes and stay focused where we know that we're going to be able to be competitive long term.

And so all of that goes into the mix to be able to create that utilization gain. We think it's sustainable as we move forward, and we're going to continue to tweak the model. And speaking of models, tech certainly plays a role in it as well. Our ability now to be able to look at our network and do analysis and optimization days in advance versus same day does create better outcomes.

And I would remind people, although we're in the latter innings of some of the tech investment and implementation of the new tech, we're in the early innings as it relates to the realization of the benefits of that technology. So we're pretty excited as we look out into '27 and beyond what this technology can do for us, but we still got a lot of work to do to realize its full benefit.

Rob, the only thing I would add to that is, obviously, it's a change in the freight mix that led to that productivity improvement, moving towards more team-oriented freight, but also a longer length of haul. And you may have noticed that we did increase year-over-year the average length of haul in One-Way by over 100 miles, or almost 18%.

Yes. Which makes the rate improvement that much stronger...

Exactly.

To when we factor it all in. Can you give us a sense in terms of One-Way margins, where we are today relative to historical average cycle margins and where that compares to peak margins?

Yes, we can, Rob. One-Way is positive. It's profitable, a significant margin improvement year-over-year. We alluded to a couple of different times of being over 700 basis points of margin expansion in One-Way.

When we look at TTS margin expansion year-over-year as well as, frankly, the EPS growth year-over-year, there were 3 big pillars, big contributors of that: One-Way and the margin expansion being one of those large pillars, along with the addition of FirstFleet and how that's been accretive to the portfolio, and then lower insurance and claims.

So it was a big contributor in the quarter. We expect that to continue. Everything that we're talking about here today -- the rate lift, the production gains, higher-performing freight and geographies of choice, more optionality -- that will continue to contribute very well to further expanding margins in the third quarter and second half.

This concludes our question-and-answer session. I would like to turn the conference back over to Derek Leathers for any closing remarks.

Yes. I just want to say thanks for joining us today. While the freight market recovery continues, the supply environment is clearly tightening and in the early stages, as I stated earlier. Continued capacity attrition and a greater focus by shippers on service, safety and financial stability all play to Werner's strengths.

We are well positioned to serve our customers and convert an improving market into sustained earnings growth. Our second quarter results demonstrate that the actions we've taken to structurally improve Werner are translating into stronger performance. We're encouraged by the progress we made this quarter, but we know there is more opportunity ahead.

We'll remain focused and disciplined on execution, delivering outstanding service and safety, realizing the full value of FirstFleet and building on the momentum across our business.

So to close, I just want to thank you for spending time with us today.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good afternoon, and welcome to the Werner Enterprises' First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Mr. Chris Neil, Senior Vice President of Pricing and Strategic Planning. Please go ahead, sir.

Good afternoon, everyone. Earlier today, we issued our earnings release with our first quarter results. The release and a supplemental presentation are available in the Investors section of our website at werner.com. Today's webcast is being recorded and will be available for replay later today. Please see the disclosure statement on Slide 2 of the presentation as well as the disclaimers in our earnings release related to forward-looking statements.

Today's remarks contain forward-looking statements that may involve risks, uncertainties and other factors that could cause actual results to differ materially. The company reports results using non-GAAP measures, which we believe provides additional information for investors to help facilitate the comparison of past and present performance. A reconciliation to the most directly comparable GAAP measures is included in the tables attached to the earnings release and in the appendix of the slide presentation.

On today's call with me are Derek Leathers, Chairman and CEO; and Chris Wikoff, Executive Vice President, CFO and Treasurer.

I will now turn the call over to Derek.

Thank you, Chris, and good afternoon, everyone. We appreciate you joining us today as we cover our first quarter results and the state of the market. In summary, market fundamentals are improving, and we are seeing a positive trajectory in our own numbers, which we'll get into shortly. Throughout this extended freight downturn, we have taken measured steps to position Werner for profitable long-term growth through our operational excellence and our commitment to safety and service. Executing on these priorities, we have actively managed our portfolio to make the business more resilient, differentiated and optimized across market conditions.

We are leaning further into dedicated and other specialized solutions, including Expedited and Cross-Border Mexico as well as asset-light offerings in Logistics. More specifically, in January, we expanded our Dedicated offering through the acquisition of FirstFleet, adding scale, density and exposure to more resilient customer verticals, including grocery and food and beverage. At the same time, we also restructured our One-Way business to create a more balanced and higher producing network that is now set to deliver improved profitability. And in Logistics, Intermodal and Final Mile are seeing strong momentum. As a result, Werner is better positioned to capitalize on an improved market.

So far, the recovery in rates has been largely supply-driven as capacity continues to exit at an accelerated pace due to regulatory enforcement. As the supply and demand dynamic tightens, we are seeing rate lift and early positive momentum in the bid season. We expect pricing gains to continue with more meaningful improvement in the third and fourth quarters. Taken together, these actions, including our FirstFleet acquisition, One-Way restructuring and yield improvements have strengthened our business and provides a line of sight to earnings growth this year.

Turning to Slide 5 to discuss our first quarter highlights. Since acquiring FirstFleet, we have taken a thoughtful but active approach to integration, prioritizing continuity while moving with intent to enhance value. We are retaining the majority of FirstFleet's management team and all drivers while aligning around a shared culture of safety, service and innovation. FirstFleet customers have been receptive with a 98% renewal rate across 2/3 of the portfolio addressed to date. We have strong visibility into the remaining 1/3 and expect a similarly strong retention. Our integration of FirstFleet is progressing ahead of schedule.

At 3 months end, we have already realized over $1 million in savings and have implemented actions representing over $5 million of our $6 million synergy target for the current year. We remain confident in capturing the full $18 million in cost synergies mid next year, which we expect will improve FirstFleet's operating margin by approximately 300 basis points. We are already seeing revenue synergies, including accelerated fleet start-ups, project opportunities and increased backhaul. While still early, these efforts are enhancing customer value and improving returns.

Top line metrics show positive inflection with strong improvement in Dedicated revenue per truck per week and One-Way Trucking revenues per total mile. Contract renewals are progressing well. Customers are accepting higher rates and supporting adjustments where needed to dedicated driver pay. Our dedicated customer retention, including FirstFleet, has climbed to 95% closer to our historical trends. The result of our One-Way restructuring is showing early gains with first quarter miles per truck up 6% over prior year despite significant disruptions from winter storms and revenues per total mile increasing 3.6%, our strongest pricing inflection in over 3 years. Strong execution of these initiatives led to One-Way revenue per truck per week increasing 9.6%, reflecting the combined effect of our restructuring and pricing actions.

Pricing in the quarter departed from seasonal trends as Q1 rates typically declined sequentially after peak season. However, rates were flat sequentially, a pattern we have not seen in the last 10 years. One-Way Truckload revenue per total mile benefited from a smaller, more targeted fleet, intentionality to replace less profitable freight, stronger spot rates and contractual rate increases secured through bid season.

In Logistics, higher spot rates drove an increase in purchase transportation costs and pressured gross margins in truckload brokerage. The margin pressure is mostly transitory as contract rates are reset, and we saw improvement throughout the first quarter. We expect continued improvement in truckload brokerage margins as bid season progresses, along with widespread implementation of higher contract rates.

And lastly, I want to highlight our team's relentless focus on safety and cost discipline. In Q1, our DOT preventable accident rate per million miles was down an impressive 45% year-over-year. Excluding FirstFleet, insurance and claims expense was at its lowest quarterly level in over a year. We also continue to lower our cost to serve through technology and disciplined execution. Total operating expenses, excluding gains, insurance, fuel and purchase transportation, were down by 5% year-over-year, and our Logistics division serves as another proof point of tech-enabled savings. Truckload brokerage operating expenses declined over 25% for the 2 years following the move to EDGE platform and with relatively stable volumes. Our asset business is now in focus. Building load assignment, equipment management and planning capabilities takes time but is ramping. We expect all aspects of asset execution to be functional later this year.

Moving to Slide 6, our plan to position the business for long-term growth and generate earnings power remains focused on 3 overarching priorities: First, driving growth in core business, which includes growing our Dedicated fleet, increasing One-Way production and rates and expanding TTS and Logistics adjusted operating income margin. Despite Q1 typically being the most challenging in the year, progress continues on these fronts. Our Dedicated fleet is growing with end-of-period tractors up 46% year-over-year with the addition of FirstFleet. Within our organic portfolio, we've increased exposure to new verticals like technology and aftermarket auto parts. Our pipeline of opportunities coming out of Q1 is strong.

On a year-over-year basis, Dedicated revenues per truck per week increased steadily, driven by the value customers place on the high service and reliability and scale as capacity tightens. In One-Way Truckload, we realized significant improvement in miles per truck. We are securing mid-single-digit increases in One-Way bids. Spot rates are higher, and we can be more selective with freight choices given a better supply-demand backdrop. And Truckload Logistics margins improved every month in the quarter as contract rates reset and exposure grew to higher spot market pricing.

Second is driving operational excellence, which we are executing on by maintaining a resolute focus on safety and service, continue to advance our technology road map, embedding cost discipline throughout the organization and realizing efficiencies and synergies from acquisitions. We've taken out approximately $150 million of cost over 3 years and continue advancing our technology transformation. For some perspective on how our technology investments are beginning to translate into tangible results. We've centralized all loads into a single unified platform, achieving full network visibility, which is enhancing our ability to optimize, balance, improve yield and reduce cost to serve. This integrated foundation has been a key enabler of our One-Way restructuring efforts over the past 2 quarters and positions us for continued margin expansion.

Building on that foundation, we are increasingly leveraging AI and automation to drive operational excellence across the network. This includes improving load planning and network design, increasing the speed and quality of tender acceptance and automating routine workflows that historically required manual intervention. We're also seeing benefits in area like maintenance, coordination and back-office execution where automation is reducing downtime, improving asset utilization and allowing our teams to focus on higher-value activities.

From a customer and safety standpoint, we are deploying real-time technology to provide immediate visibility into events such as weather-related shutdowns. While these actions can temporarily impact productivity, they enhance safety outcomes and help mitigate longer-term risk and insurance costs. Importantly, our approach to AI is disciplined and ROI focused. We are not pursuing technology for its own sake. We are prioritizing use cases that solve core operational challenges, improve returns and scale across the enterprise, supported by a strong governance framework. While AI adoption has been more visible in asset-light brokerages, Werner stands out as a second wave winner among asset carriers given our significant technology transformation and a unified EDGE TMS platform. We're rolling out AI in phases, driving efficiency today and enabling growth over time. Later, Chris will provide further details on our final priority of driving capital efficiency.

Cash flow for the quarter was up meaningfully year-over-year, and our capital allocation remains focused on fueling growth and shareholder value. Before Chris discusses our financial results in more detail, let's move to Slide 7 to provide our current market outlook. Capacity exits continue at an accelerated pace, driven by regulatory enforcement and carrier bankruptcies. Higher fuel prices is another more recent headwind for struggling carriers and long-haul truckload employment has fallen below pre-COVID levels. As a result, further capacity attrition is likely.

Defying typical seasonality, spot rates remained elevated in Q1 and throughout April. We expect seasonal improvement throughout the year as capacity attrition continues. With rate lift currently more supply side driven, any demand improvement is likely to trigger even greater market momentum. While household balance sheets remain strong, the consumer continued to face a mix of puts and takes, including tax refunds, fuel prices and interest rates. Regardless, the consumer continues to remain selective yet resilient, which bodes well for our mix of retail being more concentrated in nondiscretionary items and discount and value retailers.

Lean retail inventories position demand to play a larger role early in the recovery. While trade policy may impact restocking timing, nondiscretionary replenishment provides a buffer against near-term volatility. We expect used truck values to improve later in the year. Increased supply from enforcement is likely offset by OEM manufacturing constraints, aging fleets and higher-priced 2027 engines, supporting demand for high-quality used equipment. With respect to driver availability, we anticipate a tightening market for high-quality drivers. Werner is well positioned as a preferred employer. Our Dedicated division offers predictable roles with frequent home time that attracts top-tier drivers.

With that, I'll turn it over to Chris to discuss our first quarter results in more detail.

Thank you, Derek, and good afternoon, everyone. We'll continue on Slide 9. All performance comparisons here are year-over-year unless otherwise noted. First quarter revenues totaled $809 million, up 14%. Adjusted operating income was $11.9 million and adjusted operating margin was 1.5%. Adjusted EPS was $0.02. Adverse weather early in the quarter and rapidly increasing fuel prices in March negatively impacted EPS by approximately $0.05. Consolidated gains on sale of property and equipment totaled $3.8 million, up from $2.8 million in the prior year period.

Turning to Slide 10. Truckload Transportation Services total revenue for the quarter was $594 million, up 18%. Revenues net of fuel surcharges increased to 16% year-over-year at $516 million. TTS adjusted operating income was $14.8 million. Adjusted operating margin net of fuel was 2.9%, an increase of 250 basis points. The year-over-year improvement was driven from lower insurance and claims expense for our legacy business, accretive results from the addition of FirstFleet, profitable improvement in One-Way Truckload and higher gains from the sale of used equipment.

Our fleet metrics are on Slide 11. TTS average trucks totaled 8,454 for the quarter, a 14% increase. Note that FirstFleet trucks were in the average for 2/3 of the quarter as the transaction closed at the end of January. The TTS fleet ended the quarter at 9,040 trucks, up 1,940 or 27% sequentially. Truck additions from FirstFleet were partially offset by normal seasonal declines in Dedicated and fewer One-Way trucks, which we expected from our restructuring efforts. Our One-Way average fleet size declined 19%, while total miles were down 15% as miles per truck improved 6%.

Within TTS and our Dedicated business for the first quarter, trucking revenue net of fuel was $372 million, up $93 million or 33%. Dedicated represented 73% of TTS trucking revenues, up from 64% a year ago. At quarter end, the Dedicated fleet was up 2,230 trucks from where we started the year, a 46% increase from year-end with the addition of FirstFleet. Dedicated average trucks increased 32% year-over-year and 28% sequentially, with FirstFleet contributing for only 2/3 of the quarter. We experienced normal seasonal sequential change in the Dedicated fleet. Dedicated represented 78% of the TTS trucks at quarter end. Dedicated revenue per truck per week rose 0.8% this quarter, though impacted by the addition of FirstFleet in the mix. On a stand-alone basis, Werner's legacy Dedicated fleet delivered a 1.8% increase, while FirstFleet growth and revenue per truck per week exceeded 4%, therefore, on a pro forma basis, with FirstFleet included in the prior year baseline, growth would have been approximately 200 basis points higher or near 3%, reflecting solid pricing momentum across the combined dedicated fleet.

In our One-Way business for the first quarter, trucking revenue net of fuel was $136 million, a decrease of 12%. Average trucks declined 19% to 2,122 trucks. Sequentially, the fleet size contracted 11% and was down 264 trucks. Revenue per truck per week increased 9.6% due to higher rates and better production. Miles per truck increased 5.7% despite winter weather and revenues per total mile increased 3.6% and empty miles decreased 40 basis points year-over-year and 60 basis points sequentially. As a reminder, the strategic restructuring of our One-Way Truckload business was designed to enhance profitability by maximizing production and mitigating unprofitable freight. Our actions are complete, and One-Way operating margin improved in the quarter. We expect further benefit as we realize a full quarter of these changes in Q2.

Logistics results are shown on Slide 12. In the first quarter, Logistics revenue was $196 million, representing 24% of total first quarter revenues. Revenues were flat year-over-year but declined 6% sequentially as we focused on yield management in a margin pressured environment where purchase transportation costs accelerated more rapidly than sell-side rate renewals with our customers. Truckload Logistics revenues, which represented 72% of total logistics revenues decreased 4% on 9% lower shipments, partially offset by 5% higher revenue per load. The revenue per load improvement was from disciplined pricing and load acceptance, but more than offset by higher purchase transportation costs, reducing gross margin by 90 basis points.

Intermodal revenues accounting for roughly 17% of the Logistics segment rose by 18%, driven by a 22% increase in load volume, partially offset by a 3% decline in revenue per load. Final Mile revenues, which comprise the remaining 11% of the segment increased 8% year-over-year. Logistics adjusted operating margin was negative 0.4%, a 70 basis point decrease driven by lower volumes and gross margin pressure, which we expect to improve going forward as we adjust sell-side rates.

Let's review our cash flow and liquidity on Slide 13. We ended the first quarter with $62 million in cash and cash equivalents. Operating cash flow was $89 million, up over 200% year-over-year and up over 40% sequentially. Similar to a low CapEx quarter to begin 2025, our first quarter CapEx was a modest $2 million. Net CapEx for the trailing 4 quarters is 5.6% of revenue.

First quarter free cash flow was $87 million or 10.8% of total revenues. Total liquidity at quarter end was $513 million, including $62 million of cash on hand and $451 million of combined availability under our credit facilities. We ended the quarter with $932 million in debt, consisting of $54 million in assumed low-cost capital leases from the FirstFleet acquisition and $878 million on our credit facilities. Debt increased $180 million sequentially as a result of the acquisition and is up $292 million from a year earlier. Net debt increased $282 million year-over-year. Covenant defined pro forma net leverage at the end of the quarter was 2x, including pro forma synergies and trailing 12 months of FirstFleet results. We continue to have a strong balance sheet, access to low-cost capital and no near-term maturities in our credit facilities.

Let's turn to Slide 14. When it comes to broad capital allocation decisions, we will remain balanced over the long term, strategically investing in the business, returning capital to shareholders and maintaining appropriate leverage. With the acquisition of FirstFleet, our focus in 2026 will be on integrating the business, gaining momentum on realizing $18 million of targeted synergies and enhancing value.

On Slide 15, let's review our guidance for the year, which includes FirstFleet. We are reaffirming our full year average truck fleet guidance range of up 23% to 28%. Availability of quality drivers has been an increasing challenge more recently as a symptom of an improving macro environment. The dedicated pipeline is strong, and we expect TTS truck growth as the year progresses. Our full year 2026 net CapEx guidance range remains between $185 million and $225 million. Dedicated revenue per truck per week increased 0.8% year-over-year and was closer to 3% on a pro forma basis. We are updating our full year guidance from a range of down 1% to up 2% to be flat to up 3%. We have been successful in securing low to mid-single-digit increases in contract renewals for both our legacy Dedicated fleet and the FirstFleet business.

One-Way Truckload revenue per total mile guidance for the second quarter is up 1% to 4%, muted by the ongoing mix change following the restructuring completed late in the first quarter. Our effective tax rate in the first quarter was 24.9% before discrete items. We are maintaining our full year 2026 guidance range of between 25.5% and 26.5%. The average age of our truck and trailer fleet at the end of first quarter was 2.9 and 6.3 years, respectively.

Regarding other modeling assumptions. We continue to expect the net interest expense this year will be between $40 million and $45 million. We anticipate stable used equipment demand and resale values through 2026, given OEM production constraints and the evolving regulatory backdrop, that will be an incentive towards high-quality used assets. Our anticipated gains on sale of used equipment and revenue-generating assets for the year remains in the range of $8 million to $18 million.

With that, I'll turn it back to Derek.

Thank you, Chris. We believe Werner is better positioned today than we have been in prior cycles. We have used this downturn to make the business more resilient, improve the quality of our portfolio and strengthen our ability to convert an improving market into stronger financial performance. We are encouraged by the progress we are making across the business, including Dedicated growth, FirstFleet integration, One-Way improvement, Logistics margin recovery, technology implementation and continued cost discipline. While there is still work ahead, we believe the foundation is in place for earnings improvement to build as the year progresses.

With that, let's open it up for questions.

[Operator Instructions] And today's first question will come from Chris Wetherbee with Wells Fargo.

I guess maybe could we just start, Derek, just on sort of the take on the market broadly. I know you've given us some perspective here, but I know the business is evolving a little bit more dedicated, a little less One-Way. But as we think about sort of generally speaking, bid season, what do you think sort of the pricing environment is offering now as you look kind of across both pieces of the business?

Yes, Chris. Obviously, the 2 parts of the business function a little differently. But if I just start at the macro, we're seeing ongoing largely supply-driven constraints that are continuing to gain momentum as we get deeper into the year. Coming into the early part of the quarter, clearly, it was a bit of a bit abnormal that spot rates held up as well as they did coming out of peak season. They've grown from there. I know there was a lot of noise about what was weather-related versus other. And I think the timing and duration has shown that it was well more than weather.

Those capacity exits are only ramping at this point, both through enforcement as well as still some final fallout, if you will, from the freight recession we've lived in, in the last couple of years, all of which sets us up during bid season. On the One-Way side, we've talked about mid-single-digit rate increases early in the Q1 bid season. Clearly, momentum is growing from there. It's hard to be specific because every customer situation is different and how it fits into our new restructured network lands differently. But the expectation would be further strengthening from here as we look forward on One-Way.

In Dedicated, that's the stable part of the business. It held up well during the downturn. It has lots of upside as the market continues to strengthen. I would start first with the strength of the pipeline of new opportunities, which leads to our ability to be very selective to bring the right opportunity in the right geography at the right price. On incumbent business, renewal rates are increasing rapidly, and those are coming with price relief. Those customers also now probably more so than before in a tight market, really covet the service levels and the confidence that comes with Dedicated capacity. So we're going to continue to push on the Dedicated side to get both the price relief we need as well as increased selectivity in what is otherwise a very robust pipeline.

So as I look out, I think the builds from here and the bid season with the quarter of the business basically repriced in the first quarter, is still ongoing and Q2 is the largest pricing activity of the year. And a lot of that will obviously implement late Q2 and into Q3, but I'm optimistic from where we sit today.

That's great. And then maybe just one quick follow-up on FirstFleet. Obviously, now you have it in beginning to roll through the numbers. Can you give us a sense of how the integration process has gone and your kind of thoughts around what we might see from a contribution perspective, whether it be on an earnings basis or a profit basis, margin basis as we think about the rest of 2026?

Yes, I'll probably keep part of it somewhat general. But on the integration, I'll start with when and outlook at the scoreboard. We're excited about the fact that we're ahead of schedule on the integration. We're ahead of schedule on the synergies. We've implemented and realized $1 million of the $6 million in year synergies already. We've identified and actioned $5 million of the $6 million. Both of those numbers are ahead of schedule. We've confirmed and revalidated our $18 million assumption, and those are all just cost synergies. And so that's going well.

Culturally, probably going better than that. The team is who we thought they are. The customer base is who we believe they to be in terms of both the potential for cross-selling as well as acceptance of Werner as part of the solution. So we're going to continue to stay close to it. I'm excited at this point with how it's gone thus far. And the renewal rate is probably one of the best scoreboard metrics to point to with 2/3 of the 2026 renewals already being in the books with a 98% retention rate. I think that speaks to the value that the customers also see with a broadened portfolio brought to bear as well as the longevity and the quality of FirstFleet and the underlying asset it represents.

The next question will come from Ari Rosa with Citigroup.

Derek, I was hoping just to start, you could give us some thoughts on the ability of Dedicated to capture upside in the cycle inflection. I know you have long-term relationships with a lot of your customers. Does that mitigate to any extent the ability or the desire to kind of push rates when we see rates -- spot rates comping up double digits, but you mentioned some of the contract rate increases being a little bit more modest than that. Is that intentional? Or is that just a function of we're early in the bid cycle and we could see upside from here?

No, I think a better way to think about it is, Ari, is that Dedicated, it is really a truer version of a partnership. It's us working with the customer collectively to move service-sensitive goods at scale with pretty high driver involvement. You put all that into the mix. And what it really means is that the way we achieve the upside in a tightening cycle just takes a little bit different form. As they continue to grow and the market is tighter than it was a year ago, we see Dedicated fleet additions across multiple fleets within Dedicated. Those fleet additions come at a higher contribution margin than the existing or incumbent trucks that are already in place.

Fixed costs are largely already spoken for, and we're just simply able to add truck count. So that doesn't show up in rate per mile, but it certainly shows up in profitability. We're also able to increase backhaul and be able to fill more empty lanes, and that benefits both the customer and us. So everybody wins, but we are able to bring more money to the bottom line.

And then selectivity at the front door. I talked about that a couple of times now, but extremely robust Dedicated pipeline right now. And so our ability to be selective and make sure we're looking for kind of overlapping synergies with existing fleet, strong driver domicile areas, places where we can share assets and do so in efficient and creative ways where the customer benefits, but so do we. All of that only happens with the long-standing relationships that come with Dedicated.

And then with Firstfleet, in particular, it just created a significant amount more density across certain geographies in our network that allows everything to kind of have a bit of a multiplier effect. So we're excited about the upside. We've proven it in other up cycles that Dedicated wasn't the anchor that people believed it to be. We're going to have to go out and prove it again. And while I understand the concerns, we just simply view it as a different method by which we need to leverage the up cycle, but the outcomes have the ability to be similar.

I appreciate that, Derek. So just as a follow-up and kind of in line with that comment, is there a good way to think about what the upside could look like? Or maybe you could speak to how we should think about margin potential at mid-cycle?

Yes, sure. I mean we've talked for some time that even at the depths of the freight recession, Dedicated still remained a high single-digit type margin profile. It won't be thought long before we're back into the double-digit range. And that's really where Dedicated needs to be based on the capital intensity, the service expectations, all of the work and design that goes into building these fleets. And mid-cycle, you can expect that, that's going to look obviously more like mid-double digits.

But a lot of work to do to get there. And again, with the integration of FirstFleet, their margin profile was, call it, roughly half of ours, but the synergy targets that were identified closes a large portion of that gap, and that's before we start realizing revenue synergies and cross-selling opportunities. So there's a lot to do, but we know where the bodies are buried. We know what the work is that needs to be done, and we're actively executing on it right now.

Your next question will come from Daniel Moore with Baird.

Pretty solid quarter, particularly given weather and fuel. I just wanted to clarify, Chris, I think you said both weather and fuel were about a $0.05 impact. That's my first question. And then I was hoping to get a little bit more color just on the pace at which the book renews over the course of the year. Derek, you mentioned, I think, 25% in the first quarter. The second quarter was the heaviest quarter, but maybe if you could provide a little more context on that. And then just recognizing that in a normal world from April to June, we do see, and I think we're all hoping and expecting that we'll see some seasonality this year relative to last year, which was largely absent. What do you think that means for rates in 2Q and 3Q? That's kind of it. I appreciate it.

Dan, this is Chris. A lot packed in there. Let me just first start with fuel and weather. You're correct, approximately $0.05 the majority of that being from weather, call it, $0.03 to $0.04. That's really based on productivity that we lost during that storm. When you think about winter storms that we had in the same period, but a year ago, we would call this year just at the initial impact being much greater. I think we mentioned on our last call that at one point in time, we had 50% of the fleet that was parked and off the road. That was pretty significant, not something that we've really seen before in our history. Now the duration of the storm was shorter. So we were able to get those trucks back on the road and moving more quickly maybe than we could prior year.

So that was about $0.03 to $0.04 relative to weather and then call it $0.01 to $0.02 from the fuel impact. As you know, we can pass a very high degree of fuel volatility on to the customer through the fuel surcharge. So it's really more about timing and volatility that is within any given week given that we have those weekly Department of Energy resets. So some short-term pain, not necessarily expecting that in the second quarter, more of a cash flow impact. Obviously, the lag there to collect on that fuel surcharge. I would just note that as we grow in more of a Dedicated mix where those are round trip paid miles, just as that mix grows, there's less exposure to that fuel volatility.

And Dan, in terms of effective dates, from a One-Way perspective, I think Derek referenced about 1/4 of the One-Way business was repriced and effective, I should say, was effective in the first quarter. Most of that, though, is late in the quarter. We have just over 1/3 of that One-Way business then that comes in, in the second quarter. Another fourth in the third quarter and the remainder in the fourth quarter.

In terms of Dedicated, that's a little bit more even throughout the quarter, at least our legacy fleet. From a first fleet perspective, they had a little bit more in the first half of the year. And as we said, we're working through that and have had really good results with retention so far. In terms of seasonality with spot rates, clearly, spot rates are elevated. They've been elevated. They did not act seasonally at all through the first quarter and have remained elevated here in April. And I think our expectation, at least our base case at this point would be that they act seasonally here now through the rest of the year. So we're not expecting a decline. You have road check week that's coming up here in a couple of weeks, which typically provides a bounce. And so our expectation would be that spot rates would continue to lead contract rates. There continue to be good opportunities to take -- to capitalize on those freight choices and those freight options while continuing to service our customers with commitments that we've made.

The next question will come from Jordan Alliger with Goldman Sachs.

I just wanted to come back to the Dedicated for a second. I think you had mentioned that the pipeline is pretty strong. I wanted to see if we could go a little bit more there. I mean, are you seeing the issues with truckload capacity, driver concerns, et cetera, pushing up that pipeline or quicker closing of that pipeline? Like there seem to be an acceleration at this point in terms of those trends?

Yes, Jordan, I'll take that. I mean it's a little bit of both, but I do want to point out that one thing we're not going to do is lose our discipline on what really is Dedicated. So you see a lot of capacity Dedicated fleet proposals hitting the market during times like this, where they're really just a continuous move over-the-road type fleet that's not actually dedicated closed loop, short-haul, return to home. And we're going to be very selective on that. If we were to entertain some of those opportunities, we'll largely run those in our One-Way network versus putting those into Dedicated. But that's certainly part of it.

Quicker to close for sure, when you get into a tighter market, the ability to implement and for somebody to be willing to make a change to secure a portion of their supply chain in a high service, high capability kind of backdrop is something that they're a lot more open and excited to. And so we -- I think it's a little bit of both of those things. A lot of it is just we've been building this pipeline for some time. We've done some reorganization within the sales force. We've got some new leadership involved as well. And all of that is kind of coming to fruition. And so I think there's a flight to quality, which is part of it. I think our bigger density with the acquisition of FirstFleet and the larger overall scale of our presence out there in the market is certainly part of it.

So it's a long list of things, but the encouraging part really is just the size and scale of the opportunities in front of us and our ability to make sure that we're picking where we can win, where we know we can serve, where we know both us and the customer are going to be excited about the outcome and the ability to improve the financial state along the way.

The next question will come from Scott Group with Wolfe Research.

So rev per mile was up 3.6% in Q1. Your guide 1% to 4% for the quarter. So for second quarter despite pricing accelerating. I'm just -- I want to understand that a little bit more. Is this just some of the mix changes with the restructuring? And so is the offset maybe lower rev per mile, but a lot higher miles? I don't know, maybe rev per truck is the right way to think about it, if you have any sort of thoughts or color.

Yes, Scott, the short answer is you're spot on. That's exactly what it is. As part of the restructuring, as part of the redesign of the One-Way network, there's a pretty significant mix change going on. There's a lot of short-haul congested type loads that were taking place in the network that are not part of the mix anymore when you do a year-over-year comp. And so that's diluting, if you will, the impact of the actual underlying rate increases. There's no other story there that's really it in its totality. Mid-single digits is what we were seeing in Q1. That needle being pushed higher as we get into Q2. But we really had to do some digging and some analysis to understand the impact of mix, and that certainly plays a role in it. So I believe you're thinking about it the right way.

Scott, I would add on to that, that our length of haul did increase almost 6%. So that's reflective of the mix change that Derek mentioned. And then to your point, looking at both rates and miles from a revenue per truck basis in One-Way, a 9.6% increase year-over-year, fairly significant and reflective of the efforts there.

And not to pile on, Scott. But I would just add also to that, that fundamentally, we have talked several times about the One-Way restructuring all being aimed towards profitability improvement. We did see even in a seasonally low quarter with winter storm distractions, we did see profitability improvement in One-Way as a result of these actions, which we didn't get the full quarter benefit from.

Yes. So maybe to that point, we've got the full quarter coming of that benefit in Q2, pricing is going up, full quarter FirstFleet. I think like in a world where rates are improving, you typically see, I don't know, 2 to 3 points of margin improvement 1Q to 2Q. Could it be better than that? I mean, I guess, it feels like we should be on track for a sub-95 OR in Q2? And I don't know -- I know you don't like to give a lot of guidance, but do you think this sets us up to get back towards like a low 90s OR by the end of the year?

So you're right in terms of we won't get too specific in guiding you on a quarterly basis, Scott. But you're correct on some of those tailwinds and those things that would contribute to second quarter relative to first quarter. So full quarter of first fleet accretion and benefit, full quarter of those one-way restructuring benefits, along with rate lift from yield management, renewals, higher spot exposure and the like.

Yes. We just balance that with the reality, Scott, that we still have a conflict in Iran. We still have -- we're tweet away from a new tariff potentially. And so there's certainly some disruptions that are out there on the horizon that cause us to have some pause. But from a macro perspective, big picture, there's certainly some tail -- there's wind in the sail right now, and our job is to go out and execute against that.

The next question will come from Jason Seidl with Cowen.

A couple of quick things. One, I wanted to sort of touch base on the comment you made in the presentation on driver availability. What are your thoughts on when we might potentially see driver pay hikes this year? And do you think they'll be sort of within more normal seasonal trends or might be above seasonal trends sort of given the tightness in the marketplace? And then maybe you can provide some color on the brokerage side of the business. Obviously, Q1 provided a squeeze with the way spot rates were going. I wanted to know how we should think about margins on that segment going forward.

Yes, Jason. So on the driver side, a couple of notes there. With 78% of our trucks in Dedicated, it's a great starting place to be when you think about a driver market that's clearly tightening. Those are the best jobs for drivers to get. They're getting them home nightly, weekly, multiple times a week, depending on the fleet. Pay in those jobs is directly built and reflective of the work involved. And so we have a really good feel on what it takes for a driver to stay in one of those fleets. And where there's a gap or where there's more tightness in a particular geography, it's a one-on-one conversation with the customer about essentially their drivers on their fleet.

And so the ability to get rewarded from the customer in order to make sure all the trucks are seated, while never easy, is certainly a very understood fact, and it's something that we've worked through already on several accounts within Dedicated this year, and we'll continue to work with others as we go forward. You couple that with the fact that we have our own integrated school network, providing very high-quality drivers into the fleet on a weekly basis. It puts us in a better position from a relief valve perspective.

And then a robust experience hire program here at Werner. We're seeing application counts go up as the tightening of this market takes place. One of the underlying realities is because it's supply-driven, it's tightening through both -- it's tightening through enforcement issues, but also financial outcomes. And so there's a lot of struggling fleets out there still that really couldn't quite get all the way through this dark period. And so those drivers are looking for safe havens in places where they know their [ checkle ] cash.

As we go forward, we will be selective. We will look at it very carefully and make decisions where we believe that investment is the right move to make. But I'm pretty proud overall of where our driver pay stands today. We've got a really good, strong group of tenured drivers, both at Werner and FirstFleet. Combined, we have over 1,000 accident-free million-mile drivers going down the road on any given day and over 2,500 drivers between our 2 fleets that have over 10 years' experience at either FirstFleet or Werner. So there's a good stable middle to the fleet composition. But we'll stay close to it. I think we're in a better position than most. And as the market continues to evolve, I will be all for a tighter driver market going forward. If that's the case, it really sets us up to provide even more upside opportunity through the cycle.

Makes sense. On the broker side?

I think...

The brokerage side, yes, I mean, that's a story that I think has been well told already by many. But clearly, Q1 is an inflection quarter. There's buy-side pressure out there as this enforcement continues to take hold. And although we don't broker loads to the types of carriers that are faced with a lot of this enforcement action, it's still an open marketplace. And so everybody has got more choices and more options. Pricing has driven up. And so we saw some margin compression. I'm proud of the cost reduction work we've done, which helped mitigate a lot of that, what would have otherwise been kind of worse news. And we're going to continue to look for productivity gains and cost enhancements throughout our logistics business.

But most importantly, we're going to be actively resetting those sell-side prices as we go forward. Our spot exposure will grow over the course of the year as will the resetting contract pricing that too will move up. And you saw that in Q1 with a 5% increase in revenue per load across logistics, and we'll continue to work that as we go forward.

The next question will come from Ken Hoexter with Bank of America.

So you noted some pricing actions that you were taking. Derek, I just maybe just clarify a little bit in terms of -- are you -- I want to understand your answer to Ari's question before. Are you shifting how you lock in the dedicated contracts? Are you changing terms? I just want to understand how you're shifting that.

And then my question is on -- given the software you were talking about, should we see empty miles shrink? Is that not a factor for dedicated versus over the road? Or what does it allow you to address in either the cost or efficiency gains on the network going forward?

Sure, Ken. Yes, in Dedicated, despite the fact they're multiyear contracts, we have indexes and various functions by which price can be raised on a yearly basis. But outside of that, at any given time, just even with multiyear contracts, you've got large swaths of Dedicated coming up for renewal. And as we're renewing those fleets, we're having robust conversations with the customers about the state of the industry and what's happening out there with capacity. And we're able to reset those -- the price components at that time.

As it relates to the other mechanism or lever to pull, which I talked about, which was incremental trucks being added into those fleets, it's not that they're necessarily priced at a different rate. They just have a different cost because a lot of the original fixed cost of setting that fleet up is already in place. So they have incremental margin contribution.

And to your empty miles question, clearly, there's a backhaul opportunity in front of us. that was much more challenged a year ago, not just in rate on every one of the backhauls you haul, it will now be at a higher price number, but also the frequency by which you can fill backhaul lanes in a market that's more tight, it allows you to eliminate empty miles and really with the revenue share program benefit both the customer and our bottom line. So it's kind of a good news item all the way across, and there's no signs on the horizon to point back to some of the prior questions we received that normal seasonality isn't around the corner. And if so, the market only further tightens from here.

Yes. And does it allow you to address the other costs and efficiency? Like is it -- you talked about the synergy gains. How about the costs that you can take advantage of in your own network?

Well, clearly, part of the synergy gains when we standalone or we give stand-alone first fleet numbers, those are what we think we can do there relative to the increased density, better ordering, better truck, trailer, tire purchasing, fuel, et cetera. But there are synergies on our side, too. I mean -- and those are more just really reaping the same benefit of that additional density and frankly, larger purchasing power across the entire fleet.

So yes, there's opportunities to continue to mitigate costs, but it's still an inflationary backdrop overall. I mean the macro is still inflationary. And what we have to do is continue to work as we go forward to mitigate as much as that as possible by finding and extracting more OpEx savings through our tech journey increasing productivity as we now have all of the freight into one visible network. And we're able to, for the first time, really start contemplating asset sharing and things in ways that we couldn't do previously. Now that's early innings. We've got some work to do, but that is a major part of the 2026 road map.

The next question will come from Richa Harnain with Deutsche Bank.

So Derek, I wanted to get your perspective on where you think we are in terms of overall capacity attrition and due to better enforcement that's occurring, you mentioned also just the prolonged freight recession pushing capacity out. Maybe diesel prices, too, have talked to you all about that. You're making it difficult for the smaller carrier to compete. Do you think we're still in the early innings of capacity cleanup? Or do you think there's a lot more to come? And how do you get comfortable that these capacity declines are stickier as rates continue to improve, maybe we see more capacity creep?

And then Derek, you also mentioned a lot of work needs to be done to get back to that double-digit margin range for Dedicated. Is it really just rate repair that's the lion's share of that? Or is there more you and the team need to do or maybe the market needs to give you that's better demand to get you back to that sort of level?

Thank you, Richa. Really good questions. On the -- I guess I'll start maybe in reverse order. On the Dedicated front, I don't know that it's particularly difficult. It's just a process that takes some time. Again, we're not far off from those type of numbers as we sit today. We're getting increases in Dedicated. We're seeing the ability to have higher selectivity in new fleets entering the market. So all of those things are really setting up well for us to be able to kind of grind it out, if you will. It's not going to be an aha moment. It's going to be more everyday execution, everyday focus, making sure that we keep the truck seated and that we exceed the customers' expectations.

As it relates to the -- where we at on the capacity attrition, obviously, it's hard to have a perfect crystal ball, but I will say this, I see no slowdown in the enforcement actions. And if anything, there seems to be sort of a drumbeat of increased face and increased understanding of how widespread some of the coloring outside the lines really was. And so as we track a lot of things, one thing I would point you to is long-haul trucking employment data would show that it's now below pre-COVID levels for the first time and actually all the way back to 2017 type levels. That's an interesting stat just to keep an eye on and for us to kind of monitor. We know enforcement started with really kind of muscling it at the scales, at the officer level. And now it's taken a more tech-enabled approach to looking and scanning for things that look to be inappropriate. It's also gotten wider.

And so as they expand enforcement to include schools, to include the actual licensing process as they expanded to now even this week, they've rolled out some more increased border enforcement relative to B1 cabotage issue. And again, that's early innings. So I think there's a lot more where that came from. And yet, we have a macro backdrop where the consumer is more resilient right now than maybe I would have expected at this point. There's some potential in the back half, we see some interest rate reductions. We've got residential housing still kind of on the sideline mostly. But at some point, it's got to pop if we see some interest rate reductions. So the demand side of the equation still looks to be in a good place. And our portfolio mix is more nondiscretionary than it's ever been with the acquisition of FirstFleet.

So it is all kind of need to have and need to have now type stuff that we haul predominantly across the portfolio and often in the discount end of the spectrum. And so all that positioning, I think, looks pretty good. And if we see some normal seasonality and demand inflection, I think it just adds a little more fuel to the fire as we go forward.

Your next question will come from Tom Wadewitz with UBS.

So I wanted to see if you could talk a little bit about inflation and how much of a kind of headwind that is to what seems like a setup for quite a bit of potential margin improvement. I think you probably had a couple of different sources of inflation has been a headwind to margin. It's not just a challenged rate environment the last couple of years. And so do you need some of that to ease in order to get the traction on the margin side? Or just how do you think about that as a factor in maybe the pacing of margin improvement you can get in TTS? And then I had one on the brokerage side for you as well.

Yes, Tom, thanks for the question. I mean, look, when you look at the component costs or the components of the bulk of our cost, you're talking about trucks and trailers and tires. Our tech journey is certainly expensive. There's a lot of money that we're investing into the fleet to make sure it's refreshed in a good place. I will point out that while the fleet is a little bit older than maybe what some have been accustomed to, it's also a lot more Dedicated than it was back when we had a slightly younger fleet.

So we like the current positioning, but none of the asset choices are really getting any less expensive. And so that's why we have to continue to work on the OpEx side of the equation to make sure we're focusing on productivity and gains through technology. A lot of the tech spend up until this point, we still have some decent amount of duplicative spend where we're both managing our old systems and our new system. That largely sunsets by the end of this year. And so that's exciting to think about as we go into 2027 with a clean tech stack with enhanced capabilities and now improved data structure so we can really lean into some of the benefits of AI and some of the data type work that comes along with that.

So it's going to be -- again, it's -- it may not be sexy because it's a lot of very difficult execution moments to compile as we go through the remainder of the year. But the road map looks solid. We're staying the course, and I'm pretty excited about our ability to do things like what we've seen in logistics, but across the rest of the portfolio as we get the tech journey kind of further along than where it sits today.

Tom, I would just add to that.

I was just going to say how does that net out. Like does the pace of inflation moderate in '26 versus what you've seen in the past couple of years? Or it's better to think it's kind of a similar pace of inflation?

I don't think we're seeing inflation up and down the P&L as we were in the last couple of years, but that's not to say it doesn't exist. Derek mentioned some of those categories where there's still more elevated inflation, some of the equipment and parts, some in employee benefits, insurance premiums, although our increases have been, I think, modest relative to the rest of the industry. So inflation is there. That's something that we're mindful of, and we're in an environment where our customers are mindful of it as well. And we're seeing more shipper openness and acknowledgment, particularly on the Dedicated side, where there's some driver pay increases, there's other inflationary factors that need to catch up as those contracts renew.

I would also mention, we talked a lot about cost savings over the last 3 years, $150 million of cost takeout over that time. During this downturn, that's been largely to combat inflationary pressures, but it's largely structural, sustainable. So we'll get some lift as we hold the line on that lower cost profile, but we see rate increases, we see demand lift and some higher contribution margin as we see top line growing.

Yes, that's great. Just one on brokerage. I know you've invested a lot in systems and just want to see if you could offer some thoughts on how that manifests for carrier selection and safety. It seems like a lot of focus on that given Montgomery, but it's like, well, you can buy cheap and have maybe a lower bar on filtering carriers or you can filter the carriers more and maybe you don't get as good purchase transportation. And I guess wondering kind of how you think about that and where maybe you think you are on the spectrum?

Yes, Tom, I haven't been accused to being on the spectrum a few times. But as it relates to brokerage, we've invested heavily in qualification tools. And so when I think about our carrier selection, carrier qualification and the robustness of its ability to kind of weed out bad actors. It's a point of strength. It's always an ongoing battle. I think the level of fraud and some of the things going on out there was larger than any of us fully probably recognized.

But to your point, there is a major decision coming down the pipe. And so we're not backing away from our commitment to further fortifying that selection process and further strengthening and making it even more rigid, if you will. And it shows up some like with -- if you look at our volumes, our volumes were fairly muted year-over-year, but a lot of that is because we are being very selective and trying to eliminate the really bad day and do the best we can to put our freight in the hands of folks that are qualified, competent and capable.

And if they are all those 3 things, that does come at a price. And that's okay, and we need customers to recognize the quality of that product. Some do, some don't. And so you work with those that do and you kind of pass on those that don't. And I think that's going to be an ongoing trend as this year plays out and certainly one that could accelerate pending the court decision.

And the last question for today's call will come from Brian Ossenbeck with JPMorgan.

Maybe, Derek, just in terms -- we've heard about hair follicle testing for a while. I guess the rules are actually written, but still sitting somewhere not really, I guess, codified or put into action. So as we think about the additional regulatory levers, not necessarily enforcement of existing laws, I guess this one will be bringing out one and maybe putting into practice. I know yourselves and others do a lot of this already, but curious to think, I guess, first, if you think that this could be actually something we see come to pass under the current administration? And secondly, if so, what's relative timing and impact from your perspective?

Yes, Brian, great question. We have been, in fact, as you mentioned, we hair follicle test every driver coming into the fleet. We are a strong proponent of hair follicle testing. It's a much more accurate, much more long-lived test and a much better way to make sure America's roadways are safer.

I do believe this is an administration. It's been sitting, as you probably know, on HHS' desk for a long, long time. It's been vested off and some of the efforts to further that into law or further the implementation, I should say, of hair follicle testing is gaining some traction. There's also more on the sort of saliva or wet testing they talk about, which is also more accurate. I, for one, hope that we go to an industry standard of hair follicle testing because I think it does eliminate a great deal of bad actors from being behind the wheel of the truck. We know when we made that transition, hair follicle testing was 10x more likely to show a positive than urine analysis. Today, I can't give you current stats because everybody knows we hear follicle test. So nobody comes here or applies or tries to work here if they are a user because they know that they're going to be tested. And so it's hard for me to give you current stats.

But historically, every fleet that's converted has seen a significant uptick in failures. That, coupled with some work the administration is already doing on kind of furthering the journey, if you will, once you're in the drug and alcohol clearinghouse to have to prove that you've been through the program and that you're clean before you retake the road will be yet another leg to the enforcement stool of many legs that we've talked about today. So I think enforcement is going to still be kind of the word of the year. And I think you're going to see more of enforcement of existing regulations and/or implementation of ones that have been delayed for way too long, and we are proponents of all of the above.

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Derek Leathers for any closing remarks. Please go ahead.

Thank you, Chuck, and thank you all for joining us today. Our first quarter results clearly validate the actions we've taken during this prolonged freight downturn to structurally improve Werner. The FirstFleet integration is ahead of schedule. Our One-Way network is finding its stride and our technology investments are driving real efficiency gains. We are now a leaner, more agile organization.

As market fundamentals improve, our scale and diverse solutions give us a significant competitive advantage, positioning us to accelerate our earnings power. None of this progress is possible without our people. Thank you to our customers for their continued trust and an especially big thank you to our Dedicated drivers and associates, including our newest FirstFleet family members for their relentless dedication to safety and service.

I want to thank you all again for your time today and for your continued interest in Werner.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

All right. Good afternoon, everyone. I'm Eric Morgan, the Transport's team here at Barclays covering trucking. Very excited to have Werner Enterprises here, joined by Derek Leathers, Chairman and CEO; Chris Neil, Senior Vice President, Pricing and Strategic Planning. So thanks a lot for being here.

And I think we'll kick it off with our audience response questions. If you wouldn't mind queuing up the first question.

For those in the audience, do you currently own the stock? Yes, overweight, market weight or underweight, or no.

All right. Question # 2, please. What is your general bias towards the stock right now? Positive, negative or neutral? And thanks a lot for participating in this, everyone.

All right. And question # 3. In your opinion, through cycle EPS growth for Werner will be above, in line or below peers? And we can go ahead and vote.

All right. Well, thanks again for being here. Really appreciate it. Derek, maybe we can kind of set the stage with what's happening in the market right now. I think spot rates are up 20%, 30% from last year. We're over 3 weeks removed from Storm Fern at this point. So it feels like that's kind of behind us. But I don't know, what's your perspective on whether or not this is the long-awaited turn in the market?

Yes. I mean I think spot rates being elevated and remaining elevated starting mid-December all the way through present, especially 3 weeks post Fern is certainly a positive indicator. I think rejection rates, daily rejects hovering in that 14%, 13% range 3 weeks post Fern is probably another really positive sign. I've said for some time, I think it's been supply driven to get to this point. It took a lot longer than we thought. The difference is we finally have some enforcement and regulatory lift by going out and enforcing the rules of the road. And I think that's really what's driven it over this last, call it, 4 or 5 months to get us to the sort of equilibrium, or even a little tighter than that level.

I think what I'm most encouraged by is that the enforcement is still, relatively speaking, early innings. There's a lot more of the non-CDL stuff to be cleaned, or cleansed out of the network. We're seeing ELD enforcement starting to ramp. We're seeing the ELP continuing to ramp. I mean, this far into it, you're still seeing more elevated out-of-service violations on a weekly basis. So I think all that stuff has taken supply out, and that's really got us to where we are.

Now the question is, some of it obviously was storm related. But even if you take the edge off and you remove a couple of percentage points on that rejection rate, and you get down to, call it, 10%, 11%, 12%, that's still extremely elevated and especially in the lowest volume month of the year, which is February. So all of those things to me seem to point to, yes, we're finally here. And the question is where does it go from this point?

Right. Could you elaborate a bit on the supply side? I mean you have a lot of good context on this. And I think the final rule came out for the non-domiciled CDL with the 5-year, kind of, attrition expectation relative to the prior, I think, 2 years. So do you have kind of a base case for what's happening with supply this year?

Yes. I think the 5-year attrition thing, when the ruling came out, spooked some people thinking that it was going to be linear between now and the next 5 years. And we don't think that's the case at all. Like if you look at when these things were issued, the big spike in issuances was late '21 and then throughout '22. those things are going to expire well before 5 years. So the way the rule is written is that either/or your work authorization paperwork expires or your CDL expires. And in either case, less than about 5% of the people will be able to renew. So you're going to see it be very front-end loaded.

We've already seen that with the current data and what's happened already. I think that's going to continue in '26. By the time you're in the middle of '27, the bulk of that will have already been removed. And there'll be a few stragglers on the tail like you would always see that might still be there. And none of that counts the fact that there are some of these that were issued actually legally, like driver went to a real school, got a real education was hired under the right circumstances. And some of those are voluntarily just exiting the market just given the overall climate right now.

Right. Okay. I definitely want to get more into the market fundamentals, but Werner also did just complete a pretty sizable transaction with the FirstFleet acquisition. So I was wondering if you could just give us your perspective on what's most exciting to you about the deal?

And then also, typically in truckload, when we see acquisitions, you tend to think revenue attrition risk or -- what's your level of confidence that you can kind of hold on to a lot of that business?

Yes. I mean you never can be 100% confident that you're going to hold on all the business. But there is a lot to like about FirstFleet, and that's why we were so attracted to it.

First of all, it's pure-play Dedicated. So Dedicated is much more difficult to turn a fleet over and especially in a tightening market. So timing is really good, we believe. When the market is tightening that most of these shippers are going to have their hands full dealing with their One-Way needs and their One-Way issues and managing price. The last thing you want to do in a market like that is to unseat a Dedicated provider.

You couple that with the longevity of their customers. Three of their top four customers have been with them for greater than 25 years. The average of their top 10 customers is over 17 years. So these people have been embedded in their business for a long, long time. And what we bring to the table is -- lots of times, a merger causes uncertainty. What we're able to bring is if you have a pure-play Dedicated provider that's been in existence for 40 years with customer tenure of 25 years. But for 25 years, you've had one product to offer them and one product only, and that's Dedicated. Overnight, you still have your dedicated exposure with that customer, but now you can bring to bear the entire portfolio of Werner.

So customer reaction has been very positive. They like the fact that now it's sort of a -- it's an expanded version of a product they already like. Management of those Dedicated accounts is staying on board. Drivers are staying on board, and we're keeping the core of it intact. But we're able to augment what they provide that customer today with everything from intermodal to brokerage to the ability to surge during peak periods. Things that firstly, it was very hard for them to do, now becomes more readily available.

Okay.

I'd just say from a financial perspective, we also like it because it's accretive immediately. And that's before the synergies that we've identified. We talked about that on our call, about $18 million of synergies that have been identified in the diligence period. We feel confident in our ability to execute on those over the next 18 or so months. Over the $600 million or so of revenue, that's about a 300 basis point improvement to operating income just from operating on those mostly cost synergies. And as Derek mentioned, certainly some revenue opportunities there as well.

Yes. I appreciate that. So I think the deal, coupled with the One-Way restructuring, which we'll get into a bit, probably takes you around 75%. So yes, I think you're probably running about 75% Dedicated maybe post the restructuring. And I know you've been outspoken that Dedicated definitely will benefit from a tighter market and an up cycle, which has been a big question that you've gotten.

But maybe you can, kind of, elaborate on the mechanics of that. I know you've pointed to prior up cycles where your earnings have kept pace with others. But just, kind of, from a bottoms-up perspective, what happens in the Dedicated business when things get tight?

Yes. So post acquisition, it's closer to 70%, and that's inclusive of sort of the One-Way restructuring that we just have worked ourselves through. But yes, we think Dedicated is anything but an anchor during an upmarket. We do point to the last upmarket as just an anecdotal example. We performed very well in the most recent up cycle. And that was even at that time, Dedicated was over roughly 60% of the portfolio.

But how you do it is pretty straightforward. I mean, as the market tightens, all of these Dedicated fleets, both ours and theirs, end up picking up incremental units of capacity. Those added capacity units come at a larger margin contribution because you've already got some cost into the fleet that pre-existed, adding those 4, 5, 6 extra trucks.

You immediately get spot lift on all your Dedicated backhaul. So all of the dedicated backhaul, you're already performing, you do at a higher rate because that's predominantly spot freight that's filling those dedicated backhaul lanes. You get more of that dedicated backhaul because in a loose market, it's really hard to get your hands on some of it, even though you know it's there. In a tight market, you have much better opportunity to add more backhaul in, which obviously also benefits the customer through revenue sharing. So that's a positive.

And then new -- both retention of existing and acquisition of new customers becomes more readily available in a market that's tight. And so that all of the above kind of excites us. We think that through this turn, we'll be well positioned to be able to expand.

To put some color on that, like past cycles, we've seen 200 to 400 basis points of improvement in OR within Dedicated. And this cycle, because of the $50 million a year for the last 3 years of costs we've taken out, we think the stage is set to see more like 300 to 500 basis points. And the starting point in that Dedicated portion of our portfolio is currently already in the high single-digit range. And so that's kind of underappreciated because we reported at TTS. It's kind of, call it, roughly high single digits. You put 300 to 500 basis points of improvement on that, and you're right back on the Dedicated part of the portfolio in our long-term range that we've guided to. And so that's some of the ways we get there.

Okay. Can you elaborate a bit on the One-Way restructuring and maybe just kind of focus on these new -- not new, but these areas that you are kind of targeting expedite in Mexico. Are those areas that you want to grow?

Yes, sure. I mean, look, technology is continuing to be brought to bear in our industry. One-Way was already kind of the most commoditized portion of trucking, Truckload One-Way in particular. And as you think about that, that's only going to be more true as we go forward. Dedicated has outperformed One-Way 8 out of 10 years over any 10-year period that we look back over. And so that's why we like Dedicated so much.

But within One-Way, there are niches that are less commoditized where it takes more expertise. And so cross-border Mexico is a great example of that. We've celebrated 27 years now in Mexico, and we're excited about what the future holds. We think nearshoring is real. You see it in the foreign direct investment numbers. And so we're pretty bullish on our capability set there, but also bullish on the select number of credible competitors to the product that we offer. Instead of hundreds of thousands, you're talking about 5 or so that can do what we do in Mexico. And so that's a good place to be.

Team expedited and some of the work we're doing there, especially in sort of high-value or more difficult to serve markets, high service level markets is something that we're growing more and more into. Again, very few competitors that do that very well. And the rest of One-Way, frankly, we're going to continue to serve our customers, but in an asset-light format.

Our PowerLink solution has grown over the last several years where it's more and more integrated within our One-Way service product, if you will. It reports up through Logistics because that's what it is, but it's integrated operationally within One-Way. And so the miles are going to drop far less than the truck count. Our ability to serve our customers will still be there, but it's going to be a blended solution between our assets and third-party assets.

And then on our assets, because of the restructuring, we're anticipating the ability to increase miles per truck, kind of materially as we go forward, and we're seeing the early returns of that already. So more to play out. It's going to take a while to show through to the bottom line. We've talked about a Q2 inflection point for that One-Way restructure to really bear fruit. We're on plan and on pace to do exactly that.

Okay. Can you speak to the demand outlook for this year? I mean we've gotten some signs of optimism here in January last month. But what are you guys seeing on the ground? And what's your kind of base case?

Yes. I mean so the base case right now is I think demand has been stable. It was pretty solid late in the year and has stayed solid through the first quarter, which is traditionally a seasonal drop-off period. That's encouraging. I think it's very encouraging that inventory levels are now back at or below pre-COVID levels pretty much across the board. So replenishment is real and the need to replenish as you sell is real and it's here. So that's encouraging.

We saw a positive inflection in ISM data. So as we see manufacturing start to kind of gain some momentum, that's pointing up and to the right. And then more speculative would be what may or may not happen with interest rates. If we see some help there and some return of residential, that bodes well for truckload. We don't necessarily participate in that market, but it does increase overall demand. And so we think about that positively.

But right now, we don't need a future-looking optimism. We just need present market conditions to hold, enforcement to continue to ramp. And if we get any of these things, tax refund or otherwise, a little bit of stimulus into the economy, that just sort of adds fuel to the fire.

Right. Okay. A question, [ Brandon ]?

Derek, I appreciate you coming to the conference. It sounds like maybe you're a little bit more enthusiastic on demand here, maybe not just all supply that we in the market. Is that fair?

Yes. I mean, look, I want to put the caveat out there that everything I just mentioned is sort of forward-looking. And so we think there's a lot of different things that could happen on the demand side. You don't need all of them, but the stimulus checks are going to be real. Those are coming as it relates to the tax refund. The pockets that those will land in are people that shop at the kind of retailers that we do business with.

Yes, we're heavily retail exposed, but it's heavily on the discount retail side, and those folks spend money in those stores. And so we think that's -- something that's probably a more confident positive that we see coming. And that's both what we believe and what we hear directly from our customers. And so yes, there's lots to be positive about.

I guess with that as context, now that you're much more into Dedicated than maybe in the past, how do investors think about the recovery in earnings? Is it going to be as rapid as we've seen in the past? Or it can -- is it going to take longer now for margins to recover to levels that you want them to be sustainably at?

Yes. I mean -- I think we feel good about the ability to get back into the double-digit margin range. I mean, Derek talked about earlier that Dedicated right now is already in the upper singles. And with the additional lift we're getting from the market with the ability to go and get rate increases in our Dedicated -- our organic Dedicated business, we guided to contract renewals in the lower to mid-single digits. And so there's some -- that along with some efficiencies will help us press, I think, Dedicated back up into -- by the end of the year, the plan would be to get closer, if not above that double-digit territory range.

So that, along with bringing on FirstFleet, the synergies that we talked about would certainly be helpful as we continue to execute on that. And then I think part of the pace of improvement will just depend more on -- not more, but will be depend on the One-Way side, the restructuring that we're doing, again, the inflection there in the second quarter. But there's room to improve, obviously, on the Dedicated side, given where our TTS margins are. They are a bit more depressed than certainly we would like.

But with the restructuring, we feel like the timing is right, the opportunity is right to be more productive, to sweat the assets more, to use PowerLink more asset-light footprint combined with Dedicated. And then we have our Logistics group that is a very sizable product now, over $900 million in Logistics. We feel really good about that business. We've been leaning into technology now for a while over this course of this downturn, and we feel like that will also enable us to improve margins and efficiencies as we go.

Kind of along similar lines, you brought up the 2Q margin inflection a couple of times. I don't think you have kind of specific guidance on what that could look like. But can you help us kind of calibrate -- is there, kind of, a normal 1Q to 2Q change that you expect to outperform? Or what are the kind of the puts and takes on how investors should expect that to play out?

Yes. I mean I probably won't guide on Q1 to Q2 when we're still halfway through Q1. But Q1, one of the reasons we want to lean into and emphasize the Q2 inflection is, as much as we don't believe that the current tightness is related to the storm, certainly, part of it is, but more importantly, the storm existed. And so the storm was a right cross to the jaw in Q1.

We've talked in other settings. But at one point in the storm, we had over 50% of the fleet parked. That is a historically high level. We've never seen a number near that level. But that was a reality of how widespread the storm was, how vast it was and where it was with predominance being, kind of, across the south and up the East Coast, and that's where our footprint is. And so the storm had negative effects on Q1. Q1 will still bear some of the brunt of the final pieces of the restructure. And then as we get into Q2, some of the early returns on rate increases.

So we guided to mid-single digits in One-Way. Early returns look pretty good there. We guided to low to mid-single digits in Dedicated. Early returns look pretty good there. But it takes a while for those to implement and then to flow through. And so even something that was done in January probably at best has a March 1 implementation, but more likely March 15 or so. So you don't see a lot of it in the quarter. And so we were just trying to be as objective as we could with the guidance that we talked about, knowing that the first quarter is the seasonally weakest quarter of the year, combined with a storm that really was unprecedented in many respects.

Okay. A couple of questions on the guidance. I think you're -- in One-Way, it's 0% to 3% yield improvement, which is on mid-single-digit renewals. So you have some mix with length of haul. I guess, sitting here today relative to a few weeks ago, how do you feel about upside kind of in the back half as you can kind of leverage this improvement that you're seeing in the market, and how that flows through later in the year?

Well, I think there's definitely opportunity to improve as the year progresses. I think the most important point in our guidance was that it was a first half guide. And to your point that Derek just mentioned in terms of how the rate increases flow through and how that works itself out.

So we certainly anticipate that with spot rates being elevated, if that continues, along with these mid-single-digit contractual rate increases that come to bear throughout the course of second quarter into third quarter, that there would be some good momentum into the back half of the year.

Okay. And then on the Dedicated side, down 1% to up 2%, I know that's mixed with FirstFleet coming on. But just wondering how, kind of, locked in you are in that range for the year, just given the nature of Dedicated, or if you could see upside there as well?

Yes. I mean I'll start by saying that is entirely mix related. Like we just need to be clear, you take 2,400 Dedicated trucks that have a different operating profile and therefore, a different revenue per truck per week profile, and you mix it into our Dedicated fleet, and that's what mutes the up low to mid-single-digit guidance on dedicated increases. Both on the FirstFleet side and the Werner side, we're going to actively be working to achieve that same low to mid-single-digit increases across both fleets.

The market setup is good for that. The need is apparent and in front of the customers. We're going to have to work through it. It's going to be some arm wrestling to get there. But when you mix it all together, it still lowers the overall revenue per truck per week impact. But these fleets that they have, some of the fleets that they have, the reason the revenue per truck per week is lower is it just has fundamentally different characteristics. If you have a low mileage fleet, a low production fleet by design and high driver involved fleet, you might end up with a lower revenue per truck per week because the truck part isn't doing as much work, but the margin opportunity is still the same.

And so we'll have a year of kind of wonky comps that we're going to have to deal with, and we're having internal debates about how we might think about breaking that out a little bit to give people color. But in general, we're rolling FirstFleet into Dedicated, and it's going to be a Dedicated guide.

Okay. Appreciate that. How do you think about the supply reaction to what we're seeing in the spot market? I mean we've had a couple of months of elevated Class 8 orders. There's talk of a prebuy with ahead of EPA. So I don't know what's -- how does that typically look? And how would you expect that to play out this time around?

Yes. I mean there's a few things going on there that will keep some lids, I think, on supply. Enforcement is still in the early innings. It may be middle innings at best. So there's a lot more to still leave to be purged that needs to happen, and I believe will happen.

The part of the enforcement that we haven't talked about yet is they're also swimming upstream and they're looking at enforcement at the driver school level. There's 17,000 schools in the U.S. or there was. 7,000 of them have been put on notice to either correct their curriculum or close. And so that puts an external lid on supply growth that hasn't been in place for many, many years. So that will be a natural kind of cap on too much of a supply response to the spot market.

The third thing is at the OEM level. Yes, there's talk about prebuy. I'm not sure how much one can take place. If you look at what they've been through and the amount of layoffs and downsizing of production capabilities at the OEM level, you can have 2 elevated ordering months, but it doesn't really mean anything relative to production months, until it turns into actual units built. If you look at their own stated production expectations for the year, I would argue that it's still replacement or even a little bit below replacement level. We'll see how it plays out.

But we saw post-COVID, when they withdrew during early COVID and then trying to build back that production capability, it took 18 months or so to really hit the stride. I don't see a reason this will be any different because this time, you're not only trying to hit that stride, you're also adapting it to a new engine at the same time. And you're trying to make sure and keep both your old supplier and new supplier in the mix. And so I'll let them speak to their business. I don't want to speak on their behalf, but I think they've got some real obstacles ahead of them relative to anything that could lead to excess capacity coming into the market over the next couple of years.

Okay. Let's talk about the Logistics side. How long does this squeeze last, kind of, in the short term? And then what's kind of the strategy there once we get on the other side of the margin headwinds?

Yes. There's certainly going to be a squeeze in Q1. Everybody saw it in Q4 across our portfolio and everyone else's. The Logistics squeeze is real, and it's always an early inning, kind of, indicator of what's happening out there. So buy rates are under pressure for us and everyone. Sell rates are being reset, but it takes longer for that to happen. That's actively being worked as we speak. There'll be a focus, at least in our organization on margin over growth in the short term. We're not going to look to grow into a market that's moving as quickly. We got to go out and work on sell rate resets to get that margin back where it belongs. And we got to continue to lower our OpEx as it relates to our ability to serve, or our cost to serve.

I'm really proud last year that in Logistics, yes, the margins may not have been where we wanted them to be long term, but we were consistently lowering OpEx throughout the year while growing volume. That's hard to do, but that's the result of the tech investments we've been making. That's the result of the implementation of AI across multiple facets of our logistics operation. We're going to continue to lean into that as we go forward. And so that we can prepare ourselves for a more competitive Logistics landscape, which I think is a reality as tech continues to develop.

Okay. And within Logistics, I think you guys are leaning into PowerLink as part of the restructuring. How has that offering performed in this downturn? And I guess, what's kind of the strategy for that business?

Yes. That offering has performed very well during the downturn within the overall Logistics bucket. Obviously, that offering like any brokerage offering is under pressure right now, trying to keep people in the network and happy, and hauling the freight. But that is better than a pure brokerage type solution. It doesn't have the same variability, but it doesn't -- that's not to say it doesn't have any. And so growing our PowerLink capacity is a critical component of the '26 plan.

Right now, that's harder to do early in the year than it is once the market stabilizes. And as we get more prices reset, you can start to grow that more, but that will be under some short-term pressure. I suspect by Q2, again, that's something that you've now got enough opportunity to reset sell side, or your sell rates, to put you in an even better position to be more attractive on the buy side and to grow that Powerlink fleet further.

Right. Okay. Can we queue up the remaining audience questions, please? Number four. In your opinion, what should Werner do with excess cash? First do M&A. Buyback, dividend, debt paydown or internal investment?

I think you guys have said debt paydown post the deal will be a priority, but maybe you can just discuss your capital priorities more broadly.

Yes. After the acquisition, I mean, our leverage will still be in the low 2s. So we feel good about that from a leverage perspective. At the same time, understanding that we've taken on a little bit more debt here with that acquisition, I think that will likely be a priority as we head throughout the course of the year.

At the same time, we want to be open to M&A and open to other opportunities as long as it fits our long-term strategic plan. And so we'll have -- and obviously, reinvestment in the business will continue to be a chunk of our CapEx. So we'll keep, I think, a flexible and fluid capital allocation strategy as we move throughout the year, but probably with an emphasis toward -- or lean at least initially towards some debt paydown.

Okay. Question # 5, please. In your opinion, on what multiple 2026 earnings should Werner trade? And we can go ahead and move.

All right. And then last one. What do you see as the most significant share price headwind facing Werner core growth? Margin performance, capital deployment, execution strategy.

Derek, you brought up tech and AI. I guess you've been on this AI journey for several years now. So maybe you could just give us your perspective on what you've accomplished and what AI really brings to the table and how you're pursuing that?

Yes. I mean, I guess it's important to start with the bigger journey we were on was moving our entire tech stack to the cloud, getting everything in a digital space, cleaning up the data lake within the business so that it's as usable, and functional and accessible as it possibly can be. We're 3 years into the guts of that journey. This year is sort of the final innings of the journey. Logistics is completely converted. Dedicated and One-Way are at various maturities in that conversion. We've got almost all of the freight now in the new platform, and the new system. Some of the execution is still having to take place in the old system. There's not a week that goes by that we don't have milestones being hit, continuing to move towards full conversion.

That's all important as a backdrop because that conversion is a limiting factor in then the overlay or the application of AI in certain aspects of the business. It doesn't mean we can't use Agentic AI and start doing more and more work with call center operations, more and more outbound calling, more processing of things, and we're doing that very aggressively. It does -- it no longer precludes us at all in logistics and brokerage from being able to do sort of human-less ingestion of freight, rating of freight, matching of freight and even billing of freight, or the booking and collection. So that number is rising in our network and logistics all the time. That's why CapEx keeps -- or OpEx keeps going down, particularly the salary, wages and benefit line. And we're going to continue to lean into that as we go forward.

I think the real exciting stuff is when you get 100% of the freight in one network, one platform because then you start to be able to do much more optimization using AI tools to be able to make sure that we're as mode agnostic as we should be on behalf of our customers, but also as efficient in our execution as we can possibly deliver. That -- the bulk of that work will start to show dividends as we get through the final stage of this conversion in 2026. And so that's pretty exciting.

All right. Great. Well, with that, I think we're out of time. So we'll leave it there. Thanks so much for being here.

Yes. Thanks for having us. We appreciate it.

We have CEO, Derek Leathers; and Chris Neil, SVP of Pricing and also Head of IR. Thank you for joining us. Thrilled to have you guys.

So just to start, right, everyone is thinking a lot about kind of the broader macro environment, right, the uplift that could come. A lot of people have been excited about what we're seeing here from spot rates here early in the year. Talk to us about how you're interpreting kind of the spot rate trend here at the start of the year. How durable do you think it is? How much of it is weather-related versus real confirmation of a structural shift?

Sure. I'll start us off here. But clearly, spot rates have been the headline in the news really kind of starting in December. I would say it was outsized seasonal performance in December. As we got into January, it held pretty well. Obviously, the storms hit. The storms do play some role in it. But I think when you look at rejection rates nationally and you see what's been happening to and through the storm and especially the few weeks after the storm, that is not all storm related.

So some portion of it, I think, would be smart or prudent to take the top off a little bit. So when you think about 14.5% rejection rates, 14.75%, I think, for a couple of days, Could 4%, 5% of that be storm-related in the early days post storm? Sure. That still puts you at double-digit rejections. It still puts spot rates at sort of elevated outside of seasonality levels.

And I think it makes sense. It's been pretty significant regulatory enforcement over the last several months. I think you're finally starting to see a cleansing of some of the capacity out there that needed to be addressed. I think it's been mostly supply-driven up until now. And so with some signs now of a little bit of demand spark coupled with that, it puts us in a pretty optimistic position.

So there's clearly the demand component and the supply component. Just thinking about the demand component, that's been probably the bigger area of concern for a lot of folks. We were in Phoenix talking to one of your big competitors. I don't know, trucking market is so fragmented. I don't know if you guys even think of it as direct competitors like that. But one of the big national carriers was saying, they haven't really seen the demand flow through in a meaningful way just yet. What's your view on that?

And with the understanding, of course, you're more dedicated, but obviously, a rising tide lifts all boats. Like have you seen that demand flow through? Have you seen a pickup in customer conversations on the back of whether it's the stronger ISM or maybe some optimism around big beautiful bill tax legislation coming through. Has there been any optimism there?

Yes. I mean, look, I think there's optimism there. And I think it's hard -- when we're asked these types of questions, for instance, have you seen the demand flowing through? Well, it's tough to see it flowing through when you're overbooked at the levels you are, just dealing with kind of the aftermath of the normal peak season for the first time in several years, followed by some of the storm activity like we talked about.

The network can only haul so much freight. So I think everybody has been pretty oversubscribed. And it's trying to filter through all of that and more into the conversational or anecdotal customer interactions. And so when you do that, what I look at today and as I think about what's demand likely to look like in the coming months. You see inventory levels at or below long-term run rates. So replenishment needs ahead of us.

You see tax incentives or the big rebate moment kind of right in front of us. You see ISM inflecting positively. You see the possibility, probably the least likely of all of these I've said so far, but certainly, the possibility of one, if not 2 rate cuts this year, maybe sparking a little bit of residential demand. So I guess my main point is all of the arrows are pointing in various degrees of up, but up and to the right at a time which is bid season.

And so you need that to happen early enough in the year to be part of the conversation during bids. Customers are not going to start off bid season by saying, look, I think I'm going to have a ton of demand and I'm more than willing to pay you more money. That's not usually the starting point. So it would be nice if it were. It would be really nice if it were, but that's not where we're at. And so we're just having that dialogue. And I think expectations are set that we need rate relief as an industry and at Werner. We're being pretty clear about that. And those dialogues are going, I would say, as expected at this point.

There's been an interesting evolution shifting to the supply side a little bit where the Department of Transportation came out and talked about some of these enforcement actions that they were taking, right? So first, it was English language proficiency and then it was targeted at non-domiciled CDL issuance and some of the issues around that.

And it was really interesting, especially from an analyst standpoint, where it was like for a long time, people didn't really believe that these things were going to have a real impact on the market. And then kind of in, call it, mid-November, we started to really see evidence of that, and it started to show up in spot rates really taking off. I'm curious what's your view on some of these government enforcement actions? How real are they? What kind of impact are they having in the market or have they had so far? And is there still further impact to come? Like how tight could things get from a supply standpoint?

Yes. I mean my view is they were absolutely necessary. We absolutely needed to do something about what was going on in the roads of America. I'm glad that they're doing them. You're right, they kind of stair stepped into it, English language proficiency being the first step. Then a lot of conversation and dialogue about non-domiciled CDLs and some of the cleanup that's going on there.

Now it's ramped into upstream kind of impacts like the school networks around the country with 17,000 schools in the country and about 7,000 of them have been put on notice already for either immediate improvement or closure. We're proud to report we had 3 of our own schools audited. I was super excited they did that because we came through with flying colors and got what they call basically a perfect score.

So that's fantastic for us. So we know our vertically integrated school network now is even more valuable than maybe we realized until you see some of these other schools being closed. And then the last, and I think most powerful leg of the stool of all is they're now focused on electronic logging, which is needed. And we have 1,000-plus electronic logging companies in America. Canada, by contrast has like 9.

And so there's no reason for this. We have self-certification, which is absurd in my view, like there's no way you should be able to self-certify the legality of your logging device. And now 1 in 3 of those 1,000 have been shut down. I think there's more to come that need to be shut down and put out. I think self-certification would be a fantastic step. That will be a longer-term horizon -- I mean, not third-party certification, sorry, will be a fantastic step.

That will take a little bit more work. It's beyond regulatory, you'll need some legislative lift there. But I think that's the direction it's headed. And you put all these things together, and I think we're only in the early innings of some of this regulatory constraint on capacity, but it needs to be done because it's all in the eye towards safety.

I'll close with this. We recently kind of went through all of our competitors and our own safety stats and looked over the last several years. And really every one of the publicly traded groups, either at a 20 or 25 or all-time low in accidents. And yet as a nation, we've had 4 consecutive years of increased truck-related fatalities or major injury accidents in America. And if every one of the large carriers is at 20-, 25-year lows and yet the number is still able to be moved up, that's not okay. And the question is why. And I think the answer is those things we just talked about.

Yes. One of the things that was truly remarkable to me is just the number of driver schools that were put on notice. I mean it was almost 50% of the driver, basically told like you're not meeting standards, which just tells you something remarkable about kind of the difference, I guess, in standards across the industry.

Well, and by the way, you'd be really concerned if you looked into some of the standards that weren't met, like, for instance, I'm a driving school and I don't own a truck, that seems problematic. I'm a driving school and I don't have a physical yard to a practice facility. I'm a driving school and I have no capability for testing because I don't have a yard to test on.

I mean there is really fundamental misses here. This is not working around the edges, this is the very premise of are you training or not. And so if you have people that are able to go from the front door of a school out the back door with a diploma in 72 hours, when real legitimate schools, that's a 5- to 8-week curriculum, there is absolutely no way that was done properly.

And if they're in the cab 3 days after that versus a fleet like ours, which would put them with a leader for another 4 to 6 weeks, depending on their capability set before they ever got the keys to their own truck to go out solo. So you're talking about 10 weeks versus 4 days, 5 days. That's the difference in qualification that's taking place out there.

Maybe circling back to the question of are we seeing the evidence of that. I mean if you go back to the previous discussion around demand being stable, but at relatively low levels, not seeing an inflection in demand, but yet seeing spot rates elevated, seeing rejection rates elevated. I mean, I think that's clearly an indication that this is, at this moment, mostly supply driven and additional demand, whether it be from tax cuts stimulus or other things, I think in the future would obviously just create a tighter environment heading into the rest of the year.

Yes, double-digit tender rejection rates in January, February certainly are surprising. There have been a lot of numbers thrown out about how impactful it could be on the industry. So a lot of people talk about 5% to 10% of industry capacity. I'm curious, what's your latest thought on what that could look like or how much of industry capacity could be impacted by some of these actions?

Yes. I mean I think you kind of have to bifurcate the industry into different areas, first off. And so you've got truckload, but then take within truckload. I think the majority of this activity we're talking about is in over-the-road trucking, less so in Dedicated, less so in local and regional, but it's in the over-the-road segment. Why? Because that's sort of the easiest A to B segment, the most commoditized end of the spectrum anyway.

So that segment, when you remove Dedicated, you remove private fleet, you remove a lot of things, you get down to a number that's pretty close to 1 million, about 1 million trucks. All of the estimates are 250,000 or greater is the collective impact of this non-domiciled CDL issue, ELP, et cetera. Many think it's as closer to 400. But let's just use 250. That's 25% of the market right there.

Now they haven't eliminated 25% of the market yet, so they've got a ways to go. But everybody is on notice that they're going to be on this, they're going to continue to stay on this. And so there's significant over-the-road capacity leaving that one-way market, which has secondary and third level benefits in dedicated and in all these other markets because those markets are harder to serve to begin with.

Those are generally better capitalized, well-ran organizations serving those markets. But shippers are going to have their hands full, I think, dealing with the one-way impact and chaos. And so the likelihood of wanting to make Dedicated transitions or not wanting more Dedicated, I mean they're going to want more and more of that type of service because they know that's at least a portion of their portfolio that they can count on.

There's been a lot of talk about affordability -- the affordability crisis, inflation, obviously, has been a window maker for a lot of politicians, right? Everyone in the industry is, of course, in favor of safety, right? And it's going to be hard to find somebody who's against safety. I do worry at the same time that if we start to see higher trucking rates flow through to some inflationary pressure on the cost of goods that the Trump administration could say, kind of quietly back off some of these enforcement actions. Do you think that's a legitimate concern at all that the Department of Transportation kind of says, look, we did this, it had its effect, we succeeded. Now we're going to step away from.

So I think recent history would be the best place to look to alleviate that concern, right? If you're willing to go out with 25%, 35%, 45%, 55% tariffs, which is a much more direct impact to cost of goods potentially. Now they've mitigated it extremely well. I think the global economy has digested it in ways that probably surprised most, if not all, economists.

But that is a very linear potential impact, and yet they stayed the course because they believed it was the right thing to do. I think when you think about supply chain, total supply chain cost, call it, 8%, transportation is probably half of that, call it, 4%. Over the road is probably more like 2.5%. So 2.5% going up by 10% is a heck of a lot easier pill to swallow in the interest of safety than what they've already proven an appetite to take on directly like what they've done with tariffs and other things.

So they seem to have an appetite for this. And I've talked earlier in several of the private meetings about whether they would stay the course. And I would just tell you, it seems to me this is sort of a hand-in-glove policy right down the middle of the fairway of the things that they have shown an interest in caring about. And so I don't think they're going to take their eye off that ball.

Aligns with a lot of administration objectives, certainly.

Yes.

I think we can agree on that. So we've spent the first 10 minutes of the conversation or so talking about all these favorable things, the favorable setup for the trucking industry. And I think we've seen that reflected in the stock prices. And yet, you gave a guide for One-Way Truckload revenue per mile -- per total mile to be flat to up about 3%. And that was specifically for first half '26. So recognize it could strengthen into the second half. But talk about that number in the context of this conversation that we've just been having.

Because it seems like the stars are kind of aligned for Werner to go out and capture rate to start to see a more supportive rate environment. And yet that flat to 3%, I think, raised some eyebrows or got people a little bit concerned. To what extent should we see that as conservative? How should we think about what upside could look like to that number, whether first half or into the second half of '26 or even into '27?

Well, we think the backdrop is good. I think it is important to highlight the fact that it is just a first half guidance metric that we guided on. So there could certainly be some uplift in the second half. You think about how contracts are implemented throughout the course of the first half of the year, there's very little that's gone. I mean, here we are halfway through the first quarter. There's very little new business that's been -- that has an updated price on it, right?

I mean the way the bid season works is you start this in November, December, most of the effective dates when these things actually go into place are second half of the first quarter into the second quarter. So everything that's in place now, I mean, we're using pricing that's been baked in over the course of the last several months. That's what we've been utilizing here through the first part of the first quarter.

But that will build as we go. But understand that the first almost quarter probably is less influenced by the bid season in terms of the rates. In terms of -- so that was the guide, but we also mentioned that we expected our contract rate renewals in One-Way to be closer to mid-single-digit type increases. And so that's our expectation that's certainly needed. Obviously, as you think back over the last couple of years and the duress that, that One-Way environment has been under mid-single-digit increases, if not higher, are certainly needed to get that rate and to get the margins back to a sustainable place.

So that's what we're moving toward. We're -- we talked a little bit about a one-way restructure in the fourth -- in the call. A lot of that happened in the fourth quarter. Some of it continues to happen in the first quarter. All that was done with an eye toward profitability. And so we're leaning into some even more specialized areas of one-way that's less commoditized. Some of that has longer lengths of haul. We mentioned expedited. We mentioned the work that we do with cross-border Mexico.

Those tend to have longer length of haul movements and some of that carries a little bit lower rate per mile. And so some of the answer to your question is also mix related. But a lot of moving parts in the first half of the year with bid season. There could be more churn as we just continue to emphasize the need for higher margins. If there is more churn, then we're going to lean into what is profitable, and that could lead to some significant upside as well. But we certainly did not intend -- I mean, I think with the first half guide, the second half is where we would expect to see more of the inflection with what we're working on now.

If I just add a couple. I mean, just to summarize all that, right, because that's a lot there. But timing and mix, those are the 2 big pillars you just got to think about. The restructure changed the mix significantly. A lot of what is being restructured out is some short-haul like geographic areas where rate is very high, but it's not high enough, and there's really no way to get there from here. So it has an impact on your rate per mile when you exit that business.

And it's with an eye towards efficiency and productivity and putting more -- so the miles will drop far less than the truck count that we did as part of this restructure. And then timing is just what it is. And so deals that are being done right now, that's why we don't always issue a second guide to on a stand-alone basis of what our contracts renewing at in one way. We did this time because we want to be clear that, that expectation is mid-single digits. but there's some timing and some mix issues that play into it.

So I want to circle back to the One-Way restructuring. But before we do that, let's talk about the Dedicated side because there also, there was the guide for revenue per truck per week to be down 1% to up 2%, which again feels conservative in the context of a more supportive environment. Talk about that guide, how do you develop it? And what's the lag that we should be thinking about in terms of when a more supportive spot rate environment flows through to Dedicated?

Much easier answer. That's all mix. That's FirstFleet, that's mixing FirstFleet's revenue per truck per week into our revenue per truck per week and FirstFleet being a meaningful sized acquisition, and it's just simply what happens when you remix the soup that nothing -- don't read anything more than that.

Both FirstFleet on a stand-alone basis and Werner on a stand-alone basis will be taking rate in their networks, but they have a different type of network than what we had in terms of how that is structured and what those miles per week look like. Therefore, the revenue per truck per week is different, but they're still profitable in their current form. And we have 300 basis points or $18 million of cost synergy that we can bring to bear, which gets them closer, not all the way, but pretty close to our dedicated margins.

And then from there, both ours and theirs increase as we take rate. But the guide is very confusing because of the difference in the 2 networks, and it is near exclusively a mix issue and nothing more. So don't overread it.

So if we were to take the mix issue out, is there a good way to think about what that would look like?

Absolutely. I think from a contract renewal perspective, so let's just frame it around, as contracts are coming up for renewal, both in our organic Dedicated business and in the FirstFleet business, I think the expectation there would be up low to mid-single-digit type increases. Remembering that our dedicated margins have been relatively solid, have hung in there relatively well even in the course of this downturn.

Our organic business has had our revenue per truck per week number increase 11 out of the last 12 years. So your baseline, obviously, is different than the one-way side. But in spite of that, there has been inflation in that business, and it has been -- margins have been lower than what they typically are given the elongated down cycle that we've had here.

So mid -- low to mid-single digits on our contract renewals would be the -- really the starting point there. And we've had some good success already early in the year with some of those renewals. So we feel like that's a good place to start. Customers seem to be receptive to it at this point. I think they understand the uncertainty that the environment has been under, the duress that the carriers have been under, and they're flocking toward carriers that are more financially stable, have operational capabilities, have high service capabilities, which is what Dedicated is just in general. So I think we have a pretty decent backdrop to get those kind of results.

It's encouraging. It sounds like a lot of opportunity, a lot of areas of opportunity to kind of focus on. Over a longer time horizon, how should we think about Werner's ability to add trucks to its fleet and especially on the Dedicated side, where, like you said, the margin profile tends to be a little bit more resilient and better?

Yes. I mean I think the -- so the overall operating environment for Dedicated is setting up very well over the next several out years, right? You had what I think was a little bit of a misread during COVID of this private fleet expansion that took place. I don't -- I think many of those customers did that because of necessity. Capacity was so tight during COVID that they went out and maybe against their long-term wishes had to grow their private fleet.

That momentum has slowed, if not reversed in some cases. So that creates a tailwind for new dedicated opportunities for folks like Werner. You've had more significant consolidation in Dedicated than is really being appreciated by the market in my view. So just a few years ago, you had, call it, 15 major players in Dedicated. In that subsequent 24 months, you've seen Schneider acquire Cowan.

You've seen Ryder acquire Cardinal and us acquire FirstFleet, and that list just got a lot smaller. And it all in each case, has more sophistication, more capitalized structure behind it, more sort of a strategic management, if you will, going forward. So I think you'll see more prudence inside of that. If you drift just a little further back than 2 years, you have the Knight acquisition of U.S. Xpress, another large dedicated player.

They did other things, but they had a large dedicated portfolio, now in a much more disciplined environment under Knight's leadership. So Dedicated looks positive as we go forward. And again, it always becomes a place of safe haven when customers are seeing one way starting to become as volatile as it is. Our job will be to keep the discipline, and we've always tried to be very disciplined on what we allow into Dedicated.

So truck growth will be determined by true dedicated opportunities, not capacity fleets or continuous move fleets. We want dedicated that's long term, that's sticky, that's defensible. And I think there's going to be a very good opportunity for that going forward. The pipeline right now is robust. And so we're very encouraged by what the current pipeline looks like in Dedicated.

How do you think about how much pricing upside you can get in an up cycle, right? If we continue to see this -- the market tightening, what would be needed on the Dedicated side? Or what would you like to -- I mean, obviously, the answer is Infinity, but what would you like to achieve on the upside? Or what's kind of a realistic target on the upside from a pricing standpoint?

Yes. I mean I think Chris talked about low to mid-single digits this year. I think you need a couple of years of that to really get Dedicated back to its traditional long-term run rate. Could that happen faster if the market is supportive? Sure. And we'll be very nimble in the marketplace as we -- the good thing about Dedicated renewals is they kind of happened a little bit more spaced out throughout the year, whereas One-Way is very heavily front-end loaded.

So we're in a good position. There's this false belief that Dedicated creates some sort of anchor from an operating leverage perspective in an upmarket. We've shown that's not true. Like during the COVID up cycle, our ability to increase earnings kept pace with the best of them. And so we were always at or around the very top of the list in terms of earning expansion during COVID. And we can do that because in Dedicated, you add incremental trucks back to each fleet.

Those come at better margin contribution. You have a much more robust backhaul capability because there's more freight to choose from. There's more customer flexibility with that freight because they need to get it covered. And so you can enhance your backhaul capabilities at a higher rate per every backhaul because that's spot market freight. So those things are very additive.

And then lastly, you have the ability to yield underperforming fleets out of the network. And that's where I was a little evasive on the truck growth question because I think part of this mechanism over the next couple of years is a mix of all of these positive momentum things. And in certain cases, where you agree to disagree, you have to have the discipline to yield that out of the network. And so we do expect that there'll be some yield exercises in Dedicated.

And now with a much larger, much more dense footprint because of the First Fleet acquisition, one of the things that you always worry about in Dedicated when you yield out something out of your network is you also have dedicated drivers that you want to hold on to. They're like gold. And so you need that density of network to be able to place them in like work in other dedicated accounts nearby. And we just picked up a whole lot of nearby accounts and a whole lot more density for both the benefit of First Fleet and our drivers both.

Derek, you mentioned that idea of getting kind of low to mid-single-digit rate increases for several years in a row. Is that how we should expect it to play out? Is it the sort of thing where it's like we get 4% a year for 4 years in a row? Or is it -- can we see a significant -- can we get 8% or 9% in 1 year if the market offers?

Chris has got some real interesting stats historically. I'll let him cover those. But let's just say, we started this conversation on the regulatory front, and we're in the early innings. And we don't know for sure if they keep the appetite for the enforcement, but all indications based on past performance would be they will.

We talked about 250,000 out of 1 million of the over-the-road population needing to be addressed. If that enforcement goes all the way to the finish line, then yes, you could see a ramp that's more significant. But we're still in those early, maybe middle innings on some of this enforcement stuff. And we don't really have yet, we have early signs of a demand spark.

But you couple that with the demand spark, and yes, it could be more significant than that for sure. That's why we have to be nimble. I mean it's hard enough to give quarterly guidance or first half of the year guidance. It's much harder to talk about what we're going to do 2, 3 years out. So I'll simply answer by saying we will be prudent, we'll be disciplined and we'll be nimble. And I think our setup is really good going into this up cycle.

Got it. What are the concerns that -- or Chris, did you want to add something?

Well, historically, just to give you a little bit of a range. I mean, I think you look back over the last decade or so. And on average, again, the last 3 years, we're talking dedicated revenue per truck per week been around that 1% level, certainly lower than what they typically had been. The range, though, outside of that would be more like 4% to 8%. So there's definitely some precedent for those in the upper single-digit kind of ranges for that, but there's -- if the setup is right, that's certainly something that we've achieved in the past and could occur again.

And one of the things the industry has always been faced with and more so probably in Dedicated than anywhere is when is enough, like from a customer's perspective, well, nobody -- there isn't a player in the entire industry right now that's anywhere near in danger of being challenged by a customer relative to their margin levels.

And so we've got a long way to get this thing right to make it reinvestable across the portfolio. And I think all of us understand that. And I think customers do, too, frankly. I mean we've been -- I've been involved in some of these conversations recently. And there's 500 basis point type moves that are needed across the entire industry, not even getting to a specific company level before you could even have a conversation about reinvestability. And so therefore, we all -- I think it's a well-known fact that there's some runway out in front of us that we need to go attack.

Perfect. Well, we're certainly excited to see those better days ahead. one of the concerns that I think is really legitimate here is if we think about the government enforcement actions, it's really constraining driver capacity. It's limiting who can drive, puts a premium on qualified drivers, high-quality drivers, experienced drivers.

If we get this up cycle and especially if the up cycle is supply driven, how do we ensure that -- or I guess, how much of the rate increase then has to be passed on to the drivers? And especially if, again, we're in an environment where really high-quality drivers at a premium, it seems like the wage increases that they could see are actually quite outsized and could -- what is the risk, I guess, to the margin uplift from that?

Yes. I think -- so a couple of things work in our favor there. I do think driver supply will be constrained. I think the fact that we operate 20 vertically integrated driving schools across the nation, producing one of the largest population of graduates in the country sets us up very well compared by comparison.

So we like that foothold. We also work with Tier 1 schools across the country that we've been working with for years. And we have a pretty robust experienced driver hiring program as well. I think COVID taught the industry a lot of lessons that, one, rates -- driver rates went up significantly during COVID. They needed to go up. We have the support from customers for the first time in a long time to be able to do that.

And there was the needed gap between driver wages and call it, construction, manufacturing and other things that hadn't existed previously does exist today. There is a premium to be in a truck driver versus working in a factory or working some of these other jobs. So while there'll be upward pressure, there -- we now have our own swim lane, so to speak, with where driver wages are versus a head-to-head competition every day for some of these other industries. So I like our positioning.

The last thing I would say is because over 2/3 of our fleet is now in Dedicated, those are one-on-one conversations. So if you get driver wage pressure, let's say you do a contract renewal early in the year and by midyear, you have significant driver wage pressure nationally. We have in our dedicated contracts the ability to go back to our customer and essentially have a one-on-one dialogue because it's a driver resource dedicated to them.

And if I need more of them, I need to have that dialogue. And they've generally been supportive. Customers that value that fleet understand the risks of not paying properly. And so it's a different dialogue than versus one-way where you're betting on the come. You have to raise the driver wages to seat the truck, then try to hope that the market is there to support the truck and sometimes you get caught upside down.

I would also add, driver retention is not only about pay. I mean it's about quality of life. It's about getting drivers home more frequently. And that's really what Dedicated is all about. That's why retention in drivers with Dedicated is better. That's why customer retention is better. And so now with the FirstFleet acquisition, over half of our fleet -- or half of our revenue and 70% of our fleet now in Dedicated, the ability to retain drivers, I think, as we move into a market that gets a little more frothy is probably pretty decent.

So we've seen somewhat unprecedented levels of margin pressure in this down cycle. How should we think about between the TTS business, the trucking business and the logistics business? How should we think about what kind of mid-cycle margins could look like for each of those segments?

Yes. So we've been pretty open about the fact that our long-term mid-cycle guidance range hasn't changed despite all of the pressure we've been under the last couple of years. We still believe TTS is a 12% to 17% business at mid-cycle. So that's not a 2026 number. That's not where we think we can get this year.

Our goal this year is to try to end the year approaching something that looks like double digits or at least starting to build the momentum towards something thereabouts. We got a lot of work to do to get there. Dedicated plays a major role in that. One-Way plays a major role in that. On the logistics side, it's a little bit of a different story.

We've grown out our capabilities, lowering our OpEx to serve, and you've seen that over a couple of years now where we're getting more and more efficient from an OpEx perspective. But as any turn takes place, you get a lot of margin pressure in brokerage. And that's happening nationwide, all of the major players us included. We think that will continue for a period of probably a quarter, 1.5 quarters as we readjust and work with resetting those rates. So that will come under some pressure. But mid-cycle margins, I still believe that needs to be kind of that 4%, 5%, maybe in really good years, 6% type margin business. Again, that's a big lift to get there from where we're at today.

But over the last couple of years, we were gaining share and scale, and there was some intentionality about that. We were building out and spending a ton of money on some of the tech that we're now starting to see tailwinds from and benefits from. And so there's reasons to have the optimism toward margin expansion in logistics, especially as we get into the back half of the year and you get through this sort of short-term crunch between the buy and the sell rate.

Very helpful. We had been talking earlier about some of the restructuring of the One-Way portfolio. Let's delve deeper on that in the context of -- let's talk about what's your kind of longer-term vision for Werner, right? So what brought about this what brought about the restructuring, a lot of people would look at it and say, well, if you're going to be exposed to One-Way, now would actually be kind of the time that you would want to have that exposure. But you guys are obviously proactively saying, we're going to restructure the One-Way portfolio, make it more sustainable, more profitable for the long term.

At the same time, right, I think a lot of people think of Werner as mostly a dedicated trucking business. Is that really the objective to kind of move the business gradually more towards that? And then where does First Fleet fit into that vision for Werner?

Yes. So I mean I think I would prefer to kind of just zoom out and just talk about the vision for a second. The One-Way portion of the portfolio will always be the part that is the most commoditized. Yes, in the short term, that commoditization works in your favor potentially, and it could be a great place to be. But over the course of any 10-year history, as we do any kind of sliding scale analysis, dedicated outperforms One-Way 8 out of 10 years. We believe there's no reason to think that won't be true going forward.

And if anything, I think that could be more pronounced going forward because transparency, tech, visibility, all those things are only further commoditizing One-Way. So the question in front of us was how do we position what we do have in One-Way to both be able to exhibit operating leverage in this up cycle, but stick to our knitting on very specific niche places where it's slightly less commoditized than the rest of the portfolio.

So things like cross-border Mexico, things like Expedited, specific verticals that we build solutions around that are growth engines for the economy in the next, call it, 5 to 10 years, think tech, pharma, other things like that. And then augment it with a very robust brokerage and power-only solution in our power -- via PowerLink. You put all that together, we still can -- the miles will drop far less. The miles covered and loads delivered will drop far less than what you see from a truck count perspective.

So said differently, the operating leverage is still there. On the dedicated side, that's long term. That's long term up and to the right kind of performance that's proven itself in good cycles and bad. I realize we blend our TTS results when we publish them. And so it makes it hard for people to realize that Dedicated held up much better than people think during the downturn and One-Way performed even worse than they imagined. And that's just a reality of the way that, that part of the business has been so commoditized.

So I think it's a better long-term play. And then, of course, augment all of the above with an increasingly large, almost $1 billion logistics business that gives us sort of countercyclicality at certain points in the market. But more importantly, throughout any up or down market, gives us $1 billion worth of visibility to freight. That creates optionality for your fleet. It creates optionality for our partners. So we just like that setup a lot more. So we got to prove it now during an up cycle. We got to show how this portfolio can perform.

I understand the skepticism, but I think it's overstated as to Dedicated not having the leverage and mostly because the most recent upswing scoreboard showed the exact opposite. So no measure us on other people's history measure us on our own. And in the last up cycle, we did just fine with operating leverage.

How do you think about -- just we've been talking about the logistics side of the business. There's been a lot of excitement about the role of technology, the evolving role of AI in logistics and freight matching. I'm curious how you guys think about that? And what is Werner's ability to remain competitive in that space? Like where do you stand from a technology standpoint? How do you think about the broader logistics industry and the evolution of that space?

Yes. I mean we've been talking about the largest tech journey in our history for the last several years, and we are in the final -- the latter innings, not the final inning, but the latter innings of that journey. We love the fact that we didn't take our eye off the ball during the downturn. We continue to invest. We stayed the course. and it positions us right now very well for -- as we enter this up cycle. Logistics is basically completely converted to our new Edge TMS system.

We've got dedicated and One-Way in various states of conversion. The freight portion of it is largely converted, but the execution and some of the underlying activities are going to be the focus of 2026. It allows us to finish some integration even from prior acquisitions that we couldn't finish prior because we didn't have a landing platform to be on.

And then all of that is wrapped in a very forward lean into some of the AI capabilities that are all the rage right now. We're trying to be focused on where we implement it. We're trying to make sure it's got specific ROI, not just like to have, but stuff that really moves the needle. And so we're pretty excited about the early innings of that. And it shows through if you just look at the OpEx results from a cost perspective in logistics.

We were down first 3 quarters last year, nearly 15% in OpEx from a cost perspective. And in fourth quarter, we were starting to lap some of the earliest innings of some of these AI kind of introductions and things that we were doing. So that number dropped below 10%. But as we go forward, now we have next level stuff that we're implementing each day. So yes, we know that the market is changing. We are not taking our eye off the ball. You go back to the 5T strategy that I rolled out in 2016. One of the big parts of that was the team for technology didn't have an equal seat at the table, and we needed to understand this is going to be a tech business as much as anything else. And you got to spend that money and invest wisely to compete, and we feel like we're positioned well.

Yes, yes, please. Go ahead.

[indiscernible] from AI. You [indiscernible] all the trucking [indiscernible]. I mean the new [ specs ] optimization and planning has been around for years, right?

What's [indiscernible].

Yes. My opening take is, it's the largest, most frustrating overreaction, I think I've seen in my 37 years in the business. So that's a pretty specific answer, but that's really how I feel about it. I think -- and that's no knock on them or anything they're talking about doing, but the absolute omission by the investor community to the reality that so is everybody else.

There's nothing in the white paper, nothing in the announcement that everybody else isn't investing in, doing, pursuing. You can see it in ours and others' results where people are not as sleep at the wheel and thinking that AI is not going to play a role in all of the above. Everybody is working aggressively to compete and be as a rare case where I like to say, we don't want to be bleeding edge. We want to be just a fast follower.

Well, in AI, that's a fine line. You better be pretty close to bleeding edge, if you're going to be relevant as all this investment flows in. And it kind of like my maybe unsophisticated summary of that entire activity, it was as if the community of investors decided that the market that these folks were going to disrupt was a series of owner-operator cabs with a medallion on the dash that was going to protect them forever versus the very sophisticated, well-capitalized high-tech industry that it actually is. Sorry, we've got a little passion for that.

I think a lot of people are wondering that, too, yes. Maybe last question because I see we're pretty much at time here. But Derek, one of the things that I think has been maybe a point of frustration for investors is if we look over the long term, Werner share price has obviously fluctuated, but kind of over, call it, a 10-year horizon or so, right, there hasn't really been a ton of share price appreciation. How do you contextualize that with the understanding, of course, look, we're coming off of what's probably been the hardest freight environment in a generation for many carriers. So some of the pressure that you've seen is understandable. But in the context of some of these portfolio changes that you're undertaking, how should we think about over the next 5 or 10 years for the investors who want to own your stock and are looking for that kind of structural earnings growth? How do you get there? How does it support kind of a higher share price in the next 5 or 10 years?

Yes, I think it's a fair question. I think I'd go back, let's use the 10 years and go back to, call it, 15 for the sake of argument. We were living in the teens from a share price perspective. We rolled out some very significant changes in thought process and philosophy at our company. We got more into a growth mindset, kind of more of a portfolio blend approach, elevated tech as part of the solution, and we saw that mid-teens stock price peak and even bump 50 within the subsequent few years.

I think all of us missed, we missed, the industry missed, the investor community missed the amount of fraud and abuse that was taking place. when all of this sort of nefarious capacity entered the marketplace. I honestly don't sit up at night and try to think how people might cheat at scale. And I just underestimated the significance of it. If we can get an even playing field where everybody plays by the rules, whatever those rules may be, I like our chances of going and rejoining that same glide path that we were on when we were competing on a level playing field with others and showing our ability to execute.

But it's hard to execute against a truck that's got one driver in it with substandard wages that's operating like 2 drivers in the cab with an electronic log that's being manipulated in that cab and able to produce pricing that's 20% to 30% below cost. because they don't have those costs because they're cheating the system. So we're big fans of the regulatory environment, big fans of the enforcement. All I want is to level playing field and let our team do its job.

Well, we're excited to see how it's all going to play out. And as a transportation analyst, I always like to see transportation companies doing well. So we'll be excited to see how it plays out, and we'll be rooting for you.

Thank you. Thanks for having us.

Thank you both.

Appreciate it.

Good afternoon, and welcome to Werner Enterprises' Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Chris Neil, Senior Vice President of Pricing and Strategic Planning. Please go ahead.

Good afternoon, everyone. Earlier today, we issued our earnings release with our fourth quarter and full year 2025 results. The release and a supplemental presentation are available in the Investors section of our website at werner.com. Today's webcast is being recorded and will be available for replay later today.

Please see the disclosure statement on Slide 2 of the presentation as well as the disclaimers in our earnings release related to forward-looking statements. Today's remarks contain forward-looking statements that may involve risks, uncertainties and other factors that could cause actual results to differ materially.

The company reports results using non-GAAP measures, which we believe provides additional information for investors to help facilitate the comparison of past and present performance. A reconciliation to the most directly comparable GAAP measures is included in the tables attached to the earnings release and in the appendix of the slide presentation.

On today's call with me are Derek Leathers, Chairman and CEO; and Chris Wikoff, Executive Vice President, Treasurer and CFO.

I will now turn the call over to Derek.

Thank you, Chris, and good afternoon, everyone. We see signs of encouragement for the industry and Werner as we move into 2026. During this prolonged and unprecedented multiyear downturn, we have focused on executing our strategy to position our business for revenue and earnings growth as demand returns. We diligently cut costs, increased efficiency and continued our technology investment to enhance visibility across our execution modes, streamline and automate our operations and improve customer service.

In the fourth quarter, we made a decision to strategically restructure our One-Way trucking business to be even more targeted towards specialized Expedited, Cross-Border Mexico and engineered business. Once fully completed, we expect meaningful earnings improvement in TTS in 2026. And most recently, we used our strong balance sheet to deploy capital to acquire FirstFleet, a large high-quality Dedicated carrier. This acquisition is immediately accretive and dovetails with our strategy to lean further into profitable, sustainable growth in Dedicated with large, complex shippers across diverse markets. With ongoing capacity attrition and the early signs of demand improvement, the outlook for Werner in 2026 is more positive than it's been for several years.

Turning to Slide 5 to discuss Q4 and 2025 highlights. Disciplined pricing led to a smaller fleet and lower Truckload Logistics volumes. Higher One-Way miles per truck partially offset those factors, resulting in fourth quarter revenues that were 2% lower year-over-year. Peak volumes in December in total were flat year-over-year, consistent with expectations. Peak revenues were up mid-single digits due to higher peak pricing compared to the prior year.

In Dedicated, revenues increased by low single digits in the quarter, driven primarily by higher average fleet size. As we enter new year, momentum in Dedicated remains positive with a strong pipeline of opportunities and early realization of some rate increases.

Customers remain focused on reliable and flexible transportation partners like Werner, who offer creative solutions and high service and scale. The strength of our Dedicated business, combined with FirstFleet, creates a more scalable platform to drive sustainable, profitable growth for Werner's future. I will discuss more about the acquisition momentarily.

One-Way continues to be pressured across the industry. We remain committed to specialized services in One-Way such as Expedited, Cross-Border Mexico and engineered business. We have taken actions to restructure our One-Way operations and offering that will result in profitability enhancement, which we expect to be noticeable in the second quarter. Our vision for One-Way is a smaller, more productive and specialized fleet complemented by asset-light PowerLink carriers.

One-Way Trucking is an integral part of our portfolio and provides several competitive differentiators. First, it serves as valuable experience for drivers before being placed in Dedicated and other high-service fleets. After graduating from one of our 20 vertically integrated training academies, drivers are onboarded through a collaborative pairing process to successfully navigate diverse operating environments while maintaining high safety standards.

Second, it is an entry point to get to know customers, to build relationships and allow new customers to test Werner solutions, service and capabilities on a 1-year or shorter-term basis.

And lastly, One-Way provides flexibility and surge capacity for our Dedicated customers and it allows us to support a wide range of customers during times of increased demand. These restructuring actions are designed to increase miles per truck and shift towards more profitable specialized freight and lanes. Combined with our large trailer pool and power lane carriers, we believe this positions us to capitalize on improving market conditions and drive greater margin improvement.

In Logistics, Intermodal and Final Mile, revenues and profits increased year-over-year. Both of these divisions exited 2025 in growth mode, and we anticipate momentum continuing in 2026.

Truckload brokerage results were challenged in the quarter as purchase transportation costs increased, escalating rapidly in December and resulting in lower Logistics operating income in the fourth quarter. While margin compression has continued into Q1 and was further pressured by the recent large storms across much of our operating area, we expect it to moderate as we work through customer pricing agreements and our ongoing efficiency initiatives take hold.

Moving to Slide 6. Our plan to generate earnings power and deliver value creation remains largely the same entering 2026 and is focused on 3 overarching priorities. First is driving growth in core business, which comprises growing our Dedicated fleet, increasing One-Way production and rates and expanding TTS and Logistics adjusted operating income margin. All of these are underway. Average Dedicated trucks grew in the quarter and new fleets are being implemented in the first quarter of '26.

Dedicated revenues per truck per week have increased 11 over the last 12 years. The addition of FirstFleet grows Dedicated by 50% and the combined Dedicated portfolio represents over half of our $3.6 billion pro forma revenue.

Dedicated provides more consistent revenue streams with long-term customer relationships. The total addressable market for Dedicated is over $30 billion, and we expect to capture more market share as customers look for stable, financially viable carriers offering high service, expertise and scalable capacity.

We took decisive action beginning in the fourth quarter to restructure One-Way Trucking to improve earnings. In Logistics, we've seen a continuous reduction in cost to serve through tech enablement, while Intermodal is growing at double digits. And Final Mile is seeing the strongest momentum since inception.

Second is driving operational excellence, which will be accomplished by maintaining a resolute focus on safety and service, continuing to advance our technology road map, embedding cost discipline throughout the organization and realizing efficiencies and synergies from acquisitions. Our safety metrics remain near record lows, and our transformational technology journey is progressing and continuing to gain momentum, leading to top and bottom line synergies.

We remain focused on cost discipline. We've reduced costs by approximately $150 million over the last 3 years, the majority of which are largely structural and sustainable. In the fourth quarter, OpEx, excluding purchase transportation, fuel, restructuring cost and gains was down 5%. And relative to acquisition integration by midyear 2026, all prior acquisitions, with the exception of FirstFleet, will be fully integrated.

We have a clear line of sight on expanding historical FirstFleet margins through measurable cost synergy realization. We'll also be working to size revenue synergies such as increased backhaul, surge capacity for FirstFleet customers and cross-selling opportunities as our integration efforts begin in earnest.

Our final priority is driving capital efficiency. This includes preserving strong operating cash flow, optimizing working capital and improving free cash flow conversion while reinvesting in the business. FirstFleet is expected to be cash flow accretive. Our capital allocation will remain balanced to fund growth, invest in technology, return capital to shareholders and reduce debt and leverage over time.

Our technology journey carries on as we make progress on building out functionality in our cloud-based edge TMS. By the end of 2025, 95% of One-Way loads and 85% of Dedicated trips were migrated to the platform. Logistics volumes were transitioned to EDGE previously and have contributed to lower OpEx and cost to serve. For example, in the fourth quarter, Truckload Logistics personnel costs declined 15% year-over-year.

With visibility in the platform to all loads mostly complete, teams are now focusing on building out One-Way and Dedicated execution functionality. In addition to EDGE, the organization is also progressing with implementing AI throughout the business. We've streamlined driver onboarding, increased customer visibility, enhanced predictive maintenance and increased speed to bill is just a few examples of an AI-enabled workforce.

Moving to Slide 7 to discuss FirstFleet in more detail. We are excited to add FirstFleet, one of the leading pure-play Dedicated trucking companies to the Werner portfolio. We closed on January 27 and hosted a call on January 28. Please refer to the press release and presentation relating to our announcement last week. There are several key takeaways worth noting again here.

FirstFleet accelerates our intentional portfolio shift to higher-margin, more resilient Dedicated business. With more than $615 million in trailing 12-month revenues and 2,400 tractors, FirstFleet expands Werner's scale, network density and geographic reach. FirstFleet deepens and diversifies our presence in attractive end markets with customers in grocery, bakery and packaging solutions. We expect immediate EPS accretion with further benefit from $18 million in annual cost synergies. And lastly, FirstFleet is a strong cultural fit with a shared commitment to safety, service and innovation.

Moving to Slide 8, showing a revenue snapshot before and after the FirstFleet acquisition. The combination expands our revenue from approximately $3 billion for Werner on a stand-alone basis to approximately $3.6 billion on a combined basis. As a percent of our portfolio mix, Dedicated grows from roughly 43% of total revenues today to over half on a combined basis.

FirstFleet services many leading customers in attractive and resilient markets. Among its top 10 customers, the average tenure is 17 years, and 3 of its top 4 customers have been with FirstFleet for over 25 years. On a combined basis, FirstFleet diversifies our portfolio. Retail remains our largest vertical, though it decreases from 66% to 60% on a combined basis with roughly half concentrated in discount and value retail.

Grocery retail expands, adding more resilient nondiscretionary volume. Industrial exposure increases from 13% to 19% on a combined basis, while food and beverage remains steady at 14%. As a result, our overall portfolio is increasingly more durable and resilient, improving revenue stability, deepening customer diversification and enhancing our ability to produce steady revenue and earnings growth.

Before Chris discusses our financial results in more detail, let's move to Slide 9 to summarize our current market outlook. Capacity exits continue driven in part from ongoing broad enforcement efforts and recent tightening between supply and demand suggests that, that pace is increasing.

Consumers remain selective yet resilient, which bodes well for our mix of retail being more concentrated in discount and value retailers. Value retailers are producing good results as middle-class families trade down. And while mixed signals continue to make headlines on the health of the consumer, looking ahead, the potential for lower interest rates and larger tax refunds are creating cautious optimism.

Retailers are operating leaner as the inventory to sales ratio continues its year-over-year decline. While shifting trade policies may affect future stocking time lines, the consistent replenishment of nondiscretionary items provides a critical buffer against market volatility.

Spot rates performed consistent with seasonal trends in October and November then outperformed normal seasonality in December. So far in January, spot rates remain elevated. As the recent winter weather subsides, we expect spot rates to moderate, but we expect an upward trend throughout the year as capacity exits and demand improves.

Used truck values are likely to remain above 2-year lows with pressure tilted upwards longer term. However, we're also cognizant of the possibility that accelerated attrition from enforcement could create short-term pressure. Class 8 net truck builds continue to be below replacement levels and not only signal truckload capacity tightening ahead, but also that more carriers could be looking to refresh their fleet in the used equipment market.

With that, I'll turn it over to Chris to discuss our fourth quarter results in more detail.

Thank you, Derek. We'll continue on Slide 11. All performance comparisons here are year-over-year unless otherwise noted. Fourth quarter revenues totaled $738 million, down 2%. Full year revenues also declined 2%. Adjusted operating income was $11.3 million and adjusted operating margin was 1.5%. Adjusted EPS was $0.05.

Consolidated gains on sale of property and equipment totaled $2.4 million, down from $6.5 million in the prior year period, which included a $5.1 million gain on the sale of real estate.

Turning to Slide 12. Truckload Transportation Services total revenue for the quarter was $513 million, down 3%. Revenues net of fuel surcharges declined 3% year-over-year at $455 million. On a full year basis, revenue, excluding fuel, decreased 3%. TTS adjusted operating income was $12.7 million. Adjusted operating margin net of fuel was 2.8%, a decrease of 30 basis points.

Dedicated fleet growth, lower insurance costs compared to last year and higher equipment gains were more than offset by margin degradation in our One-Way Trucking business.

Let's turn to Slide 13 to review our fleet metrics. TTS average trucks were 7,340 during the quarter, down 2.1%. The TTS fleet ended the quarter down 5% and dropped 345 trucks sequentially, also down 5%, both a reflection of the One-Way restructuring that began before the end of the quarter. TTS revenue per truck per week net of fuel decreased 0.4%, primarily due to lower miles per truck, partially offset by higher revenue per total mile.

Within TTS, Dedicated revenue net of fuel was $292 million, up 1%. Dedicated represented 65% of TTS trucking revenue, up from 63% a year ago. With FirstFleet included, Dedicated will grow to over 70% of TTS.

Dedicated average trucks increased 2.4% year-over-year and 1.8% sequentially to 4,954 trucks. At quarter end, the Dedicated fleet was up 10 trucks from where we started the year and represented 68% of the TTS fleet. Dedicated revenue per truck per week decreased 1.1% in the quarter but was slightly positive for the full year.

In our One-Way business for the fourth quarter, trucking revenue net of fuel was $156 million, a decrease of 8%. Average trucks of 2,386 decreased 10% on a year-over-year and sequential basis. 360 fewer One-Way trucks were in the fleet at the end of the year. Sequentially, the One-Way fleet fell 230 trucks.

Revenue per truck per week increased 2.2% due to higher miles per truck. While One-Way revenue per total mile declined slightly year-over-year in the fourth quarter, the negative variance was a result of mix change. The mix issue is a byproduct of the restructuring started in the fourth quarter, ultimately designed to improve profitability. We are focusing on more specialized One-Way like Expedited and diversifying to verticals such as pharmaceuticals and technology. This mix change will impact One-Way Trucking revenue per total mile throughout the year.

Miles per truck increased 2.3% in the quarter. On a full year basis, after increases of 2.2% in 2023 and 7.6% in 2024, miles per truck decreased 2.1% for the year.

Although empty miles increased 10 basis points, the sequential change from the third quarter to the fourth quarter was 20 basis points lower than last year, reflecting better balance in peak season. For the year, combined One-Way and PowerLink total miles declined less than 2% in spite of average One-Way trucks falling 4.5%. As One-Way Trucking production improves and the PowerLink fleet grows, we'll be able to serve customers efficiently with fewer assets.

To give some further color on the One-Way restructure, we began a strategic restructuring of our One-Way Truckload business, a decisive action designed to significantly enhance profitability and fleet utilization by maximizing production and mitigating unprofitable freight.

The restructuring resulted in a total charge of $44.2 million in the fourth quarter. It is important to note that a significant portion of this is noncash, totaling $42.7 million, which includes the impairment of $21.7 million of intangible assets and $21 million of revenue equipment. This noncash charge reflects the necessary steps to rationalize our assets and business model for future margin expansion.

Logistics results are shown on Slide 14. In the fourth quarter, Logistics revenue was $208 million, representing 28% of total fourth quarter revenues. Revenues decreased 3% year-over-year and 11% sequentially as we focused on yield management.

Truckload Logistics revenues decreased 8%, a 9% lower shipments with gross margin contraction. Traditional brokerage volumes declined 8%, while our PowerLink shipments also fell down 10% due to fewer PowerLink carriers.

Disciplined pricing and load acceptance resulted in lower volume as purchase transportation costs increased during the quarter, rising rapidly in December. Purchase transportation costs moderated slightly in January and have remained relatively high, resulting in ongoing gross margin pressure.

Intermodal revenues, which make up approximately 16% of the Logistics segment, increased 24%, almost entirely from higher volume. Final Mile revenues, which comprise the remaining 12% of the segment, increased 4% year-over-year.

Logistics adjusted operating margin of 0.5% decreased by 60 basis points, driven by lower volumes and gross margin contraction, partially offset with lower operating expenses. Fourth quarter operating expenses in Logistics were the lowest since before our ReedTMS acquisition in late 2022, driven in part through technology investments.

Let's review our cash flow and liquidity on Slide 15. We ended the year with $60 million in cash and cash equivalents. Operating cash flow was $62 million for the quarter and $182 million for the full year. Fourth quarter CapEx was $69 million and full year was $163 million, less than 6% of revenue compared to just under 8% prior year. Net CapEx for the year was down $72 million or 31%, in part from an exceptionally low CapEx spend in the fourth quarter of 2025. For the last 9 months of the year, net CapEx was 7.5% of revenue. Free cash flow for the full year was $19 million or just under 1% of total revenues.

Total liquidity at quarter end was $702 million, including $60 million of cash on hand and $642 million of combined availability under our credit facilities. We ended the quarter with $752 million in debt, up $27 million sequentially and up 16% from a year earlier.

Net debt increased $83 million or 14% year-over-year. We continue to have strong balance sheet, access to capital and no near-term maturities on our debt structure.

Let's turn to Slide 16. When it comes to broad capital allocation decisions, we will remain balanced over the long term, strategically investing in the business, returning capital to shareholders and maintaining appropriate leverage.

With the acquisition of FirstFleet, our focus in 2026 will be on integrating the business, gaining momentum on realizing $18 million of targeted synergies and enhancing value.

In terms of certain details of the FirstFleet transaction and the impact on our total debt, the total purchase price was $282.8 million, consisting of $245 million for the operating company and $37.8 million for acquired real estate. Approximately $48 million of the consideration was deferred, including a $35 million earn-out that will be measured and if earned, it will be paid after March 2027. The transaction was funded with a combination of cash on hand and incremental debt, which included additional draws on our revolver -- revolving credit facility and the assumption of FirstFleet capital leases at closing.

As of January 31, 2026, total borrowings under our revolver and accounts receivable securitization facility were $884.6 million, representing an increase of $132.6 million versus December 31, 2025. Assumed capital leases at closing were estimated at $57 million, resulting in a total estimated increase in debt of $189.7 million since year-end 2025. With FirstFleet, we believe we have a compelling set of opportunities to accelerate profitable growth, enhance resiliency through the cycle and deliver on our mission to keep America moving.

On Slide 17, we are introducing our 2026 guidance, which includes FirstFleet. We are changing our fleet guidance metric from end-of-period trucks to average trucks as fleet size fluctuates quarterly, creating volatility in end-of-period metrics. Including FirstFleet, our average truck fleet guidance for full year is a range of up 23% to 28%. With the One-Way trucking fleet decreasing further in the first quarter, we expect average TTS trucks from the organic Werner fleet to decline early in the year before showing improvement as the year progresses.

Our full year 2026 net CapEx guidance range, including FirstFleet, is between $185 million and $225 million. The upper end of the range allows for a prebuy in the second half given 2027 EPA emission changes.

Dedicated revenue per truck per week full year guidance range is down 1% to up 2%. We expect low to mid-single-digit increases in contractual rates for both our organic Dedicated fleet and the FirstFleet business. However, the combined mix results in a more muted change relative to our Werner stand-alone metric.

One-Way Truckload revenue per total mile guidance for the first half of the year is flat to up 3%. We are expecting mid-single-digit contract rate increases, but the revenue per total mile is muted due to mix changes from restructuring actions.

Our effective tax rate in the fourth quarter was 20.8%. The effective tax rate for the full year was 20.1% before discrete items. Our 2026 guidance range is between 25.5% and 26.5%. The average age of our truck and trailer fleet at the end of the fourth quarter was 2.7 and 5.6 years, respectively.

Regarding other modeling assumptions. With the acquisition of FirstFleet, we expect net interest expense this year will be between $40 million and $45 million. We anticipate stable used equipment demand through 2026 and expect resale values to remain generally stable given OEM production constraints and the evolving regulatory backdrop that will be an incentive towards high-quality used assets. Excluding real estate, gains of the sale of used equipment is expected to be in a range of $8 million to $18 million.

With that, I'll turn it back to Derek.

Thank you, Chris. As we reflect on 2025, it's clear that while the environment remains challenging, the actions we've taken over the last several years are beginning to show tangible progress. We made difficult but necessary decisions to redesign parts of the business while continuing to invest in areas that position us for long-term growth and strengthen our long-term earnings power.

What remains constant through uncertainty is Werner's competitive advantage. We are a large-scale, award-winning, reliable partner with a diversified and agile portfolio of solutions designed to meet customers' evolving transportation and logistics needs. Our Dedicated business continues to perform well. Our Logistics platform is gaining momentum, and the addition of FirstFleet meaningfully accelerates our shift toward more resilient, higher-margin revenue streams.

As we recognize our 70th anniversary with a more durable and diversified portfolio and as market conditions improve and demand begins to normalize, we believe Werner is well positioned to generate operating leverage and improved earnings performance as demand accelerates.

Most importantly, I want to acknowledge the dedication and commitment of all of Werner's talented drivers and associates, and I want to welcome our FirstFleet family. None of this progress would be possible without the entire team. Their commitment, adaptability and focus on safety and service continue to differentiate Werner every day.

While the job is not finished, we remain confident in our strategy, disciplined in our execution and focused on controlling what we can as we position the company for sustainable long-term value creation for our customers and shareholders.

With that, let's open it up for questions.

[Operator Instructions] This call will end at 5:00 p.m. Standard Time following the company's closing remarks. Our first question today is from Richa Harnain with Deutsche Bank.

So look, it seems like a lot is happening here with the company. You just made this accretive acquisition. You have more organic Dedicated growth maturing, your restructuring of One-Way. Trucking market is also undergoing repair. So just in light of all of these things, I know, Derek, you started this conversation by saying you see a better outlook for Werner than you've seen in a long time. But as the dust settles, like what is like a normalized earnings power that you see here underlying the business? And how should we expect the cadence of sort of improvement from 2025 levels to play out in 2026?

Yes, Richa, I appreciate the question. You're right. There is a lot going on, a lot of moving parts. We are excited about where we came out of it as we go into an evolving market.

As we think about '26, we certainly see opportunity for earnings growth. We want to be clear about a few things. We're not abandoning One-Way, but we are a leaner, more agile version of ourselves, complemented now with a growing and more capable set of PowerLink carriers. So we like the flexibility that provides for us.

The acquisition of FirstFleet, as you mentioned, is something we're very excited about. We do believe it gives us the more durable, stable opportunity for earnings growth as we look out into future years.

We've talked about this on prior calls, but over any 10-year period, Dedicated outperforms One-Way on average about 8 out of those 10 years. We recognize that One-Way is at an inflection point from an overall marketplace, but we do not believe any of the moves we've made will prevent our ability to participate in that inflection.

And yet, with all of that stated, when you talk about the progression of that playing out, clearly, Q1 started off with some pressure points, largely or mainly the very significant storm that took place across the entire United States over a period of several days. And so that is going to be a significant headwind in the quarter. We know that.

The restructuring work that were done takes a while -- that was done in Q4 takes a while to bear fruit, and we're still kind of in the final stages of that as we were in the early stages of Q1. That's why we pointed toward Q2 is kind of where you see a more material inflection in earnings from our perspective with all of the actions that I've just spoken about.

As the year plays out, clearly, we expect to gain momentum both from marketplace support but also the internal decisions that we've taken to better position the fleet. So we don't give EPS guidance, and I'm not going to try to drill in more specifically than that, but I will -- but hopefully, that gives you some color on how we think about the ramp.

The next question is from Brian Ossenbeck with JPMorgan.

Maybe just a little more on the One-Way restructuring. When we look at -- I guess, trying to understand the mix a little bit better because I think contract renewals up mid-single digits, but the One-Way guidance for rate per miles is actually less than that. I know it's mix related, but I thought that would be going the other way if you're going into higher-value areas and whatnot. So maybe you can explain that a little bit more.

And also the prebuy, I think you were one of the first to talk about putting some -- maybe some dollars at work potentially for the prebuy. So maybe you can bring us up to speed in terms of what's happening there because, of course, there's a lot of different moving pieces with that on the regulation, but also with tariffs. So if you can walk through those two, I appreciate it?

Yes, sure, Brian. Thanks for the question. Let's start with the rate per mile question. So just I'd like to kind of reconcile for everyone that the way contract rate renewals work, we see about 1/4 of those rate renewals in Q1. They don't implement immediately. There's always a bit of a lag to implementation with another 1/3 of those in Q2 with the same kind of lag implementation concern. So the guidance we issued was for the first half of the year. So what you're capturing is the portion of those contract renewals that we're able to affect change on and then a little bit of recognition of the lag effect before they take place.

At the same time, obviously, with a smaller, more agile fleet, we're going to be working relative to yield. And so you can get rate through -- both through contract renewals, but also through simply freight mix and yield. So we'll work to exceed the guidance issued. But at this point, with the visibility we have and at the starting point of the year where the market was versus as it's continued to show sort of increasing strength, we've got a lot of work to do between now and then. So flat to up 3% is kind of the net effect of not being able to review it all at once, but contract renewals on an apples-to-apples basis, mid-single digits is kind of where we're at right now and where we've seen some early returns.

Obviously, those are hard fought, and we're willing to walk from some business as we go through this process and place those trucks, if necessary, into what's currently in our network is about a 25% premium to be in the -- or $0.25 premium, I apologize, $0.25 premium if those same trucks were placed into the spot market. So essentially dialogues with our customers and how the process plays out will determine what that spot mix is, but there's a willingness on our part for that to grow if necessary.

Relative to the -- sorry, the second part of your question, yes, we just wanted to acknowledge that the range was fairly wide given the midpoint of the range and going with a $40 million plus kind of total range that what we're really signaling there is just flexibility.

We've got our order board kind of loaded to do up to certain levels. We may, in fact, pull all of those levers as we gain increasing clarity on where the market is at. And as we think about costing going into 2027 potentially being elevated and probably more importantly, technology being less tested. So it's really just signaling an openness to that. It's too early in the year to talk about where we'll actually land or how we may or may not execute on that.

Right now, the first order of business is just fleet refreshing, making sure we keep our fleet kind of where we're at because we feel comfortable with the age. In calls past, we've talked a lot about numbers that were lower than where we're currently at. But I'd remind everybody now with 70-plus percent of the trucks in Dedicated that really positions us in a different return to base kind of model and therefore, allows for a different application of equipment.

We're never going to let our fleet get old. We always want to run a modern fleet for recruiting reasons. But we do believe our flexibility relative to fleet age is greater as we get more and more densely implanted within Dedicated.

The next question is from Jordan Alliger with Goldman Sachs.

I just wanted to come back to the restructuring. Just sort of curious if you could give maybe a little bit more color as to the timing of completion and if there's any, whether it be cost saves that you'd expect to be attached to it or margin improvement related to it or even your thoughts on what it could do for yields as you sort of exit sort of these unprofitable businesses?

Jordan, yes, thanks for the question. First, in terms of timing, we started in the fourth quarter. It's continuing here through the first quarter. We expect it to be largely complete by the end of the first quarter. So we would start to see some of that benefit in Q2, likely noticeable in Q2, but for sure, in the second half, that would be more noticeable and accelerating. So that's kind of the timing on it.

From a margin perspective, I won't get too specific with you, but certainly, it's all aimed at profitability improvement, getting back to positive reinvestable margins and doing it with speed and precision and less dependence on some market factors. So that's what it's aimed to achieve, getting back to positive reinvestable margins being the key there. So probably not as specific as you would like, but we have high confidence in the impact that will result later in the year and our ability to get that done by the end of the quarter.

Yes. And relative to the cost side, obviously, one of the primary objectives of this is to continue the forward march on sweating the assets better, increasing productivity over time. So despite the fleet being smaller, the focus on network fits, density creates certain efficiencies, whether it's lower deadhead or higher miles per truck, all of which also lend themselves to better service outcomes and the ability for us to then extract the value that, that service represents.

So there's a lot in the soup, but it's been something that was considered very carefully, and we're excited about kind of what we're seeing from early returns. But for it to flow through and show through to the bottom line, as Chris indicated, we view that inflection point being in Q2.

The next question is from Tom Wadewitz with UBS.

I missed some of the beginning of the call, so I apologize if you kind of touched on this. But how do you think about the kind of impact of FirstFleet in terms of profitability and whether that's something that I guess the synergies from that kind of ramp and you get more from that through the year? I mean, I think, it kind of sounded like that would be relatively low profitability coming in or maybe -- I don't know, just how we think about that accretion and the margin on that and how that might change through 2026?

Yes, Tom, thanks for the question. Yes, on a stand-alone basis, FirstFleet's margins are lower than Werner Dedicated. But at the same time, we've talked about $18 million of identified cost synergies. We think about 1/3 of those can be realized within the calendar year 2026. But by the end of the year, we'll be on kind of a 2/3 of those run rate. That alone, when fully realized, represents about 300 basis points of margin improvement. So that's something that's pretty exciting, and that's the sort of tangible cost savings that are more measurable really when you're still in the due diligence phase and you're not quite yet in the business.

As we get into the business, obviously, over time, we'll continue to update, but there are revenue synergies. There are some efficiencies that we know we'll gain. Our networks are extremely complementary to one another. And we do feel that we have a line of sight to FirstFleet's margins converging with Werner's traditional Dedicated margins over the next, call it, 18 to 24 months. There's going to be some work to do. But in the short term, it's not a broken asset. It's certainly got opportunity for margin expansion. It's got long-term customer relationships and deeply embedded sort of customer structures and infrastructure built around those existing customers. So like-for-like, lots to gain from it, and we're excited about what it represents.

In terms of broader kind of just how we think about TTS margin playing out, is it really a function of kind of how well pricing develops? Or I mean you have a lot that's Dedicated, right? So that takes longer to kind of see an impact from the market. But is that -- is it kind of as simple as that if you get stronger pricing and better freight through the year, then that's the key lever for margin for TTS?

Yes. I mean a couple of ways I'd think about that. I mean it is accretive to earnings out of the gate. It is an improvement on the blended TTS margins that you see today because as we've stated several times, our Dedicated operates significantly better than our One-Way network does. And it's -- so it's improving sort of the net of TTS. That's pre-synergies. And then as we apply synergies, we can improve further from there.

So there's no -- not really a short-term pain for long-term game play here. This comes into the building. On a positive, we can improve it from there. And our lower but more nimble exposure in One-Way, we believe, positions us very well through this bid season to be disciplined. And we're committed to doing exactly that as well as the optionality, if you will, of our PowerLink carrier network to continue to run a lot of those miles.

As we increase production, which we've shown an ability to do, it's not like there's a linear relationship to the fleet size shrinking and the amount of freight we can haul, it's just going to be a much more focused approach towards some of those Expedited solutions we've spoken of like Mexico Cross-Border, some of the work we're doing with -- in the Expedited space, overall engineered solutions and some of the verticals we've spoken of in the past, where we're growing our exposure to sort of harder to do higher value or otherwise One-Way freight that it does operate at a premium.

And Tom, maybe just to go back to -- just to make sure that we're clear on the synergies and the opportunity to expand margin for FirstFleet. Those synergies are largely cost synergies. So to Derek's point, there's very little that's market dependent, that's any change in assumption on rate and renewals on those contracts. Certainly, the market could be helpful in that regard, but that's not what's built into the $18 million of synergies. And it's not too different from our past practice and discipline around cost and identifying synergies.

Just as a reminder, we've identified and realized $150 million of cost savings for the Werner business over the last 3 years, largely structural and sustainable and without sacrificing safety, service and growth. So that same approach is what we're applying to FirstFleet.

Obviously, as we get closer to the business and more time working alongside the business, then we'll have an opportunity to refine that further and look for revenue synergies. But we have a high degree of confidence in our ability to realize those synergies, and it's familiar to us in terms of how it's built and how we would go after it.

The next question is from Jason Seidl with TD Cowen.

You mentioned a lot about the retail side because obviously, that's where the bulk of your exposure is for your end markets. But industrials with the acquisition is becoming a greater part of what Werner does. Maybe you can give us a little update where you see the industrial markets in '26 as there seems to be, at least thus far, a little bit of a mixed bag from some of the transports that are reported.

Yes. Clearly, I mean, I think mixed bags from transports reporting is a rear-facing measurement as we look forward and we think about what's happened recently with some of the data coming out relative to the ISM index and where that stands, some of the optimism, I think, out there relative to overall economic conditions being better than feared, arguably better than hoped. And then the consumer and the resiliency there, I know that's more of a retail answer. But nonetheless, there's some optimism out there across the board in our view.

Understand, too, that ironically, in some of our manufacturing and industrial, a large chunk of that is really some of this packaging and other things that we're involved with, that feeds into -- directly into kind of retail channels, more focused on e-commerce which is a growing vertical or a growing portion of the economy. And although there's some consolidation in that marketplace, as long as you're with the consolidator and that is who your sort of core customer exposure is with, we feel like we're in a pretty good place.

And historically, when the ISM starts to go into expansion mode, how long do you actually start seeing some demand on your end?

Yes. Look, our exposure in that space, I mean, you can ask questions about retail all day long, and we will probably be a little more versed to be frank.

ISM is difficult because of the -- as I mentioned, the components in which our vertical is -- what's composed within that portion of our portfolio really is feeder stock in many respects to retail or in consumer kind of products.

The exception to that, obviously, is Mexico. And so a chunk of what we do in that is into and out of Mexico. And from both what we're hearing and seeing and experiencing on our own fleet, that portion of it is doing very well because of all of the noise we've just been through relative to tariffs and other changing of supply chains, the direct foreign investment taking place in Mexico to expand plant and equipment with some of the major manufacturers down there. And that portion of our portfolio is heavily tied to that. And we're very optimistic about what the future of that Mexico Cross-Border franchise looks like.

The next question is from Scott Group with Wolfe Research.

So Derek, just following up on one of the earlier questions about like there's a lot of moving parts in the model right now. I know you talked about some weather in Q1, but is there any way to just help us think about, I don't know, from a margin or from an operating income standpoint, how to think about at least just the starting point for the year in Q1? I know -- I mean, Q1 last year was pretty tough. I assume we'll have some degree of -- or hopefully, we'll have some degree of margin improvement in earnings growth relative to Q1 last year, but sort of any color that you can help us with?

Scott, this is Chris. I'll start on that one, and then Derek can add to it. You're not wrong in terms of last first quarter of 2025 was challenging. There are some headwinds and challenging challenges this quarter that we're certainly dealing with in terms of Winter Storm Fern, the broad impact that it had throughout the Southeast, where we are more heavily concentrated. In fact, a few weekends back at really the peak and the brunt of that storm, about 50% or half of our tractor fleet was parked over the weekend. So that was rather unprecedented for us. So that's a significant storm.

We had a storm in the first quarter of last year. We sized that of being about $0.04 drag on EPS. I would say this is a worst storm. We do have some pop-up demand with the aftermath of that storm but hard to say how long that will be ongoing.

And then in addition to that, we obviously have the One-Way restructuring that's ongoing. That's not to say that it makes the quarter worse, but it certainly doesn't make it better, and it's a significant operational lift. So it's a further distraction.

And then the margin -- the Logistics margin squeeze, more capacity driven but significant increase in the buy-side rate pressure, not atypical for brokers, but it's something that we have to manage through for the quarter. So those are challenges I would say that we would view them as being largely temporary. All of those will pass, including on the Logistics margin squeeze, our ability to eventually pivot and adjust customer contracts and be able to adjust that sell-side rate.

So I know you'd like more information on profitability and whatnot. Maybe just to level set, as you know, last year, the first quarter was a negative $0.12 of adjusted EPS. The winter storm being worse, but we also have a number of positive momentum that helps us, the momentum and growth in Dedicated, some early rate increases, momentum that we're seeing in Intermodal and Final Mile. And obviously, the momentum that we will see at least for 2/3 of the quarter with FirstFleet, which we expect to add to revenue growth and be accretive from an operating income perspective.

The next question is from Bruce Chan with Stifel.

This is Andrew Cox on for Bruce. We wanted to get a question about current market dynamics. We're having a difficult time trying to parse through whether or not this supply-led thesis is enough to keep the rate momentum up through year-end. If we look back through January, rates pretty quickly fell off after the peak season and have since risen due to Winter Storm Fern.

We're just trying to understand whether it's based on historical precedents or some other anecdotes you guys want to provide. But whether or not this supply-led thesis is enough on its own to carry rates throughout the year, we can't seem to think of a previous cycle that was kickstarted by supply alone. They were always coinciding with some sort of demand impact. So I just wanted to get your thoughts on whether supply is enough and outlook for demand beyond that.

Yes. Thanks, Andrew. So a couple of things. One, I do believe thinking about the supply side of the equation as the kick start is the right way to think about it. I don't think any of us are proposing that the entirety of the turn will be supply and supply only, although enforcement efforts at this point, not only have remained sustainable, they've actually continued to tick up and increase further.

I think that momentum will continue throughout the quarter. I think it's admirable that it's not just one truck at a time at the scale enforcement-type level like it began. And now it's more scalable enforcement, and it's also further upstream. There's enforcement actions going on at the driver training level. There's enforcement actions going on at the electronic logging level. All of these things have a cumulative effect.

We know it's real because we can see it in our own network. We can see it in rejection rates nationwide, and we could see it both pre and post storm. So yes, they fell off from December to January. That is normal that, that would happen year in and year out. The fall was not as severe as we would have maybe typically seen. And then the ramp was into the storm and post-storm has been far more significant than we've seen in recent years, whether that be other storms or other external factors. And so all of that would say to me that clearly, some of the noise today is storm related, and we need to recognize that.

But when you see rejection rates as recently as today, crested 14%, that's relatively unprecedented territory. We're starting to be in the world of COVID-like rejection rates at a number like that. Part of it is storm related. So maybe you take 2% to 3% off, 4% even for that, and you're still sitting at double the average rejection rate of what we've seen for multiple years in a row.

So it feels real. It feels like it's finally here. And I think when you couple the supply constraints as the kick start to use your words, with the demand inflection of one of the largest tax rebate seasons that we've had in many, many years and potentially with the new Fed share, some increased relief through interest rates for the average consumer that plays out at some point during the year. There's a lot to like about the setup.

In the meantime, one of the reasons we embarked on this One-Way restructure is we're not going to wait and just sit around and expect the market to solve the problem alone, we want to take proactive steps and proactive actions to create an environment within One-Way to be poised and ready to make those moves to be a leaner version of itself, a more selective version of itself and then complement it with the work we do with our PowerLink solutions.

And so that's our plan. That's what we're going to go execute on, and that's where our focus is going to be as we go forward. But I do understand the trepidation or the concern. It's hard to parse when you've got a big storm coming off of a normal January downdraft that's now showing itself as an abnormally strong February, but I think there's more to it than just the storm.

The next question is from Reed Seay with Stephens.

I want to ask one back on FirstFleet real quick. When you have done these acquisitions in the past, you've gained a lot of new customers, maybe some customers you do know. What does customer retention look like whenever companies like this change hands? Do you have some level of turnover initially whenever there is an acquisition?

And then I also want to follow up on a question that was asked earlier on the negative mix within One-Way. You did note that it was a negative mix shift from the fleets that -- the units you restructured to the ones you'll be keeping. So what would be the force that is driving that down from the mid-single digits to maybe your low single digits? Because I think what we had talked about is you would be targeting more niche differentiated freight, which we would think would come with a higher revenue per total mile. So I think that's kind of where our confusion is. So if you could just clarify that, that would be great.

Okay. Sure. I'm going to give that a whirl. That's a lot there. If I don't answer it, feel free to follow up. Starting with customer retention, every acquisition is different, and every acquisition has a different level of incumbent loyalty and incumbent relationships with their existing customers.

The FirstFleet has a long-standing deep relationship with the core of its book of business. We also know the majority of those customers prior to the acquisition and have previous exposure to them. So all of that gives us even more confidence. The fact it's Dedicated, which is very difficult to displace and replicate, makes it even more encouraging. So every acquisition is different.

This one, I would say, from a customer perspective, feels better than most as it relates to our ability to retain it. They're a high-quality carrier with very tenured drivers with very high service levels. We're only going to enhance those abilities by bringing lower-cost trucks, trailers, tires, fuel and other items to the table and be able to provide them now with additional portfolio options that they did not have as a stand-alone company. There's -- so said differently, if you're the customer, there's nothing not to like about that.

So we're pretty confident in the customer retention. We're going to work aggressively on the drivers, associates and others to make sure and retain the core of that. And the executive team at FirstFleet is largely intact and staying on board, and those meetings have been ongoing. So hopefully, that answers kind of the first part of it.

The question about One-Way trucking rate per total mile, let me attempt to be a little more clear here. As part of it, you're right, we're going to be more targeted. We're going to be more selective. We're going to lean into aspects of our network that we think we have particular strength. One common theme across those aspects is a longer length of haul. And when you have a longer length of haul, when I talk about mix, I just have to remind folks that your rate per mile, because that's what we report in One-Way, is lower with the longer length of haul.

We're coming out of this restructuring with a significantly larger portion of the fleet operating in sort of a team environment. We're coming out of it with a significantly larger focus on higher value, high service expectation, longer length of haul transit. And as Mexico grows, that always will come with a longer length of haul footprint. So those kind of work against what you're doing on the contract side and net you out a number with that guide of 0% to 3% that may not look as meaningful, and that's why we tried to apply the additional color of saying on a like-to-like basis, contract renewal approach, that's where the mid-single-digit kind of activity is taking place.

The next question is from Ravi Shanker with Morgan Stanley.

So Derek, just to confirm, you've been the biggest bull on the supply side for the last year now. Just wanted to confirm that you're not turning more bearish on the cycle with this TL rationalization. And also, did you consider doing this maybe a year from now or 18 months from now and you potentially past the peak?

Yes. Thank you, Ravi. You're right. I've been consistent in my messaging on the supply side being more real. The enforcement took a lot longer than I would have liked and the scaling of that enforcement has taken even longer still. I think it's gaining momentum, and I think it's very real.

As it relates to One-Way why now, which I think is a fair and great question, it really came down to the reality of accelerating the return to the margins that we believe are appropriate for our shareholders. It really comes down to the confidence we have in our PowerLink solutions, sort of that variable capacity model to be able to still serve a lot of that freight, work with our customers, embrace our large-scale trailer pool and assets that allow for them to have maximum productivity at the warehouse level. And we think we can do all of the above with a leaner version of One-Way.

It's not a turn away or abandonment of One-Way in any respect. In fact, we just think it's the better application of scarce resources and scarce capital to continue to put it in long-term Dedicated relationships and support One-Way with those customers that want, deserve and have -- and are willing to compensate for that support. And so that's kind of how we got here.

It was -- if anything, you mentioned should we have waited a year longer, perhaps we should have done it a year sooner, if anything, but better now than not accomplishing it. So I'm excited about the outcome. I'm excited where we sit and look forward to being able to demonstrate it as we get through the other side of this.

The final question today is from Ken Hoexter with Bank of America.

Just checking, Chris, the $35 million earn-out, was that disclosed on the call last week? Is that new news? I just don't think I caught that just technical on that.

And then the guiding Dedicated fleet to 23%, 28%, can you differentiate that? Does that mean the core? Are you still looking at anything dropping on the core in terms of fleet size in order to get that growth rate? Just want to understand that mix there.

Yes. First on the earn-out, Ken, that at a minimum was in the 8-K that we posted, that may have had slightly more information versus maybe some of the comments that we gave during the call shortly after closing. So that was at a minimum. I think we also mentioned it as part of the call on the 28th.

Perfect. And then the Dedicated fleet size?

Yes, the guide from 23% to 28%.

Yes. Just is there -- I would have thought maybe the mix would have been a little bit higher than that. I just want to understand, is there a signal there that core is declining like what you're doing with One-Way at all? Or is a little bit? Or is it -- is that just a simple add-on?

No. Just keep in mind there that as a result of the One-Way restructuring, which will continue through this first quarter, and that's an average, by the way. So there would continue to be a reduction in the One-Way fleet and in our organic business that would be a function of that overall average TTS fleet size that includes FirstFleet.

The last thing I would -- yes, I would just add, too, Ken. Part of the whole density play when you lay over 2 very dense Dedicated networks over top of one another, it allows for -- and this is part of the work we are now embarking on is increased efficiencies with how you utilize assets. And so you can get more done with less assets when you're doing asset sharing and the ability to kind of work across very dense portions of that network.

So back to sweating the assets, I've talked about earlier relative to One-Way, that's not unique to One-Way. We want to make sure we do that across the portfolio. And so this is just where we believe is a guide for modeling sake on what that fleet would look like as we get to the end of the year.

And Derek, just to wrap up, if I can, on the cutting -- back to Ravi's question on the One-Way, what happens to the trucks now, right? So if we're all kind of looking at a market that could be inflecting, are the trucks gone once you write them off, you're selling them, you're dumping them somewhere else into the market? Or is there opportunity -- I don't know, if the market really is inflecting rapidly, can you shift them back into play? Can you shift them to Dedicated given you're acquiring into the market? I just want to understand literally what happens to those trucks in the market.

Yes, a little bit of all of the above. I mean some of them, we had Dedicated start-ups in the fourth quarter. We were able to shift and move assets that direction as appropriate. We will, in fact, be selling some assets off, and that's part of the overall restructuring as well.

We've moved assets to other regions and other applications where appropriate within One-Way. That was a significant part of the cost incurred as part of this restructuring when you have to move trailer pools and assets in significant distances to get them repositioned to be able to capitalize, if you will, on this market that's changing and where it's changing faster. So there's a little bit of all of the above.

And just to be clear, even on the remainders that we talk about when we say the One-Way restructuring is continuing through Q1, we will be nimble as we go through that, meaning we're going to leave optionality open as we're moving forward. We're going to continue to test waters and understand every day post-storm, what's happening out there relative to the tightness and probably more importantly than the storm, continue to monitor and acknowledge the outcomes of the ongoing enforcement enhancement. And if that continues to play out, this thing could get pretty interesting pretty quickly.

And lastly, I would just tell you, like we have said for many years, we are out working and we're going to be working with dedicated customers relative to rates and renewals and the ability to flow them back to One-Way in an event that we're unable to gain agreements is another level of flexibility or another lever we can pull, especially in a One-Way market that is if we were to find ourselves in one that's improving even more rapidly than we believe.

This concludes our question-and-answer session. I'll now turn the call back over to Mr. Derek Leathers, who will provide closing comments. Please go ahead, sir.

Yes. Thank you. Look, as we continue to navigate this dynamic environment, we're going to keep focusing where it matters most on delivering superior value to our customers and positioning Werner for the long-term success. We took significant steps in Q4 towards becoming a leaner, more agile organization in One-Way.

We recently added significant scale and capabilities to our Dedicated portfolio via the acquisition of FirstFleet. We remain confident in the progress towards our long-term strategic objectives as well as the strength of our portfolio to solve our customers' complex transportation and logistics needs. Our scale, reach, expertise and diverse range of services position us well in this evolving market.

I want to thank you all for spending your time with us today, and thank you for your continued interest in Werner.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good day, and welcome to the Werner Enterprises Business Update Conference Call. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Chris Neil, Werner's Senior Vice President of Pricing and Strategic Planning. Please go ahead.

Good morning. Earlier today, we issued a press release and posted a slide presentation announcing our acquisition of FirstFleet. These materials are available in the Investors section of our website at werner.com. Today's webcast is being recorded and will be available for replay beginning later this evening.

Before we begin, please direct your attention to the disclosure statement on Slide 2 of the presentation, as well as the disclaimers in the press release related to forward-looking statements. Today's remarks could contain forward-looking statements that may involve risks, uncertainties and other factors that could cause actual results to differ materially.

On today's call with me are Derek Leathers, Chairman and CEO; and Chris Wikoff, Executive Vice President, Treasurer and CFO. We're excited to announce our acquisition of FirstFleet, one of the leading pure-play Dedicated trucking companies in the U.S. This is an important milestone for Werner as we execute our business strategy. This transaction will meaningfully strengthen our platform and position the company for sustainable, profitable growth over the long term.

As you will hear over the next few minutes, FirstFleet is the perfect acquisition to accelerate the strategic expansion of our Dedicated business, establishing Werner as the fifth largest Dedicated carrier in the U.S. It expands our scale and density across the eastern half of the country, significantly improving our ability to serve customers.

FirstFleet brings deep relationships with an impressive roster of large top-tier customers that further diversifies our exposure to attractive and resilient end markets. Importantly, this acquisition is also immediately accretive to EPS and positions us to capitalize on growth opportunities as market conditions continue to improve.

For Slide 3, I will now turn the call over to Derek to provide a high-level overview of FirstFleet, and the power of our combined enterprise.

Thank you, Chris, and thanks, everyone, for joining us today as we update you on this exciting milestone in our history. FirstFleet was founded in 1986 and is headquartered in Murfreesboro, Tennessee. Over the past 4 decades, the company has delivered sustained growth, built deep relationships with premier customers winning in their space and developed a strong reputation for safety and service that closely aligns with Werner's own values.

The FirstFleet also has a 100% company driver base with lower-than-average industry turnover. FirstFleet brings meaningful additional scale to Werner. Generating more than $615 million in annual revenue for the 12 months ended September 30, 2025, operating approximately 2,400 tractors and 11,000 trailers supported by more than 2,650 drivers and serving customers in roughly 130 sites nationwide.

Moving to Slide 4. This slide provides a by the numbers look at this acquisition and the combined scale of our two companies. From a revenue standpoint, the combination expands our total trailing revenues for the 12 months ending September 30, 2025, from approximately $3 billion for Werner on a stand-alone basis to approximately $3.6 billion on a combined basis.

Importantly, our combined company mix shifts a larger portion of our portfolio toward Dedicated, which grows from roughly 43% of total revenues today to approximately 52% on a combined basis. While One-Way Truckload and logistics will account for approximately 22% and 24% of total revenues, respectively. This transaction drives a 20% increase in our total revenues, a 30% increase in TTS and almost a 50% increase to Dedicated. The combined company will operate over 9,800 trucks in our truckload transportation services fleet. Dedicated represents approximately 3/4 of the total fleet, with around 7,365 Dedicated trucks in addition to roughly 2,480 trucks in One-Way Truckload.

Now turning to Slide 5. That mix shift is one of the key strategic benefits of this transaction. As we've discussed before, we've been very deliberate over the past few years about transitioning our portfolio increasingly towards the higher-margin Dedicated trucking business, a $30 billion-plus total addressable market that is more resilient, contract based and protected by high barriers to entry.

Differentiators like scale, flexibility and industry expertise are critical here and addressing complex customer needs drives higher margins, strong customer retention and robust cross-selling opportunities. That's exactly what FirstFleet delivers. Added scale, geographic density and market diversification, deep industry expertise in grocery, bakery and corrugated packaging, a commitment to customers, safety and innovation and a proven track record of profitable growth.

As you can see on the right side of the slide, the impact of this acquisition is clear. It adds highly qualified drivers to create a top 5 Dedicated fleet in the U.S. delivers EPS accretion, accelerates profitable growth and earnings stability and expands in market diversification.

Slide 6 demonstrates how FirstFleet's complementary footprint transforms our network. As you can see from the map, FirstFleet's customer sites and facilities layer perfectly onto ours, creating nearly 300 Dedicated locations across 37 states with significant density in the eastern half of the U.S., as well as complementary terminals and facilities throughout.

Greater network density means higher asset utilization and the flexibility to meet customers' needs anywhere, leading to overall improved efficiency and capability. With greater scale, we're also able to benefit from better fixed cost absorption and purchasing power.

On Slide 7, we look at how this acquisitions deepens and diversifies our exposure to premier customers across our primary verticals. As I mentioned, one of the things that really stands out about FirstFleet is the quality of its customer base. FirstFleet services many leading customers in attractive and resilient markets, including grocery, bakery and corrugated packaging. Among its top 10 customers, the average tenure is 17 years. And three of its top 4 customers have been with FirstFleet for more than 25 years, a testament to their high service levels and commitment to long-standing and winning customers.

On a combined basis, retail remains our largest vertical at about 60% of our portfolio. In this vertical, we service a variety of retail customers, including discount, grocery and home improvement retailers. The addition of FirstFleet strengthens our position with national retailers, driving deeper route density and expanding share of wallet with new and existing retailers to Werner. Manufacturing and Industrial represents about 19% of our portfolio with core exposure to manufacturing and heavy equipment end markets, supporting OEMs and industrial distributors.

FirstFleet brings unique capabilities at a significant scale in non-commoditized corrugated box solutions. FirstFleet's corrugated solutions are particularly attractive as they primarily service large enterprises with high volumes tied to recovery in e-commerce and manufacturing demand. FirstFleet also provides specialized packaging solutions that are sticky and higher margin.

And finally, food and beverage accounts for about 15% of our portfolio. Werner already provides Dedicated and temperature-controlled services for numerous food and beverage customers. FirstFleet further strengthens our exposure to essential staple food categories and as leading customers with consistent demand and nationwide distribution footprints with particular expertise and scale in specialty bakery. Taken together, these complementary verticals provide a diversified, resilient set of end markets with long tenured customers that will amplify our competitive edge and help drive profitable growth.

Overall, we have deep faith in the Dedicated service offering to be a higher-margin anchor product that generates customer loyalty and enables us to cross-sell and upsell. So this is a strategic move to increase our market position and be poised for growth as the market recovers, all without compromising our balance sheet. This transaction will immediately deliver strong EPS accretion, while maintaining modest leverage. This is a great outcome for shareholders and all of our stakeholders.

I will now turn it over to Chris to take a closer look at the transaction itself.

Thanks, Derek. Turning to Slide 8. Werner is purchasing 100% of the equity in the FirstFleet operating entity for $245 million. We have also entered into a separate agreement to purchase the underlying owned real estate assets for $37.8 million. The transaction closed yesterday on January 27, 2026, and was funded using cash on hand in our existing revolver credit facility in addition to assuming certain capital leases.

From an integration standpoint, FirstFleet's management team will largely remain in place. And FirstFleet will operate as a business unit within Werner's TTS segment. Going forward, its results will be combined with Werner Dedicated in our quarterly earnings reporting.

As mentioned at the top of the call, the transaction is immediately accretive to our EPS even before synergies. Following the full realization of anticipated synergies, we expect to expand margin and cash flow. While FirstFleet's operating margins have been profitable and durable through this prolonged and challenging downturn, we have identified approximately $18 million in annual synergies, which we expect to be largely implemented within 18 months of closing and will drive continued EPS growth for the next 2 fiscal years.

Closing with the summary of the key takeaways on Slide 9. First, the acquisition accelerates our planned transition to Dedicated, making us one of the largest Dedicated carriers in the U.S. This also enables us to diversify our revenue streams during market disruptions by increasing exposure to more resilient end markets.

Second, with FirstFleet's highly complementary footprint, we will have expanded scale, greater reach and coverage. Third, it deepens and diversifies our exposure to top-tier customers across durable and resilient verticals, particularly in retail, manufacturing, industrial and food and beverage.

Fourth, there is a strong cultural fit between Werner and FirstFleet with a shared commitment to safety, service and innovation. These shared values give us confidence in a smooth integration and the long-term success of the combined platform. And finally, the transaction provides exceptional EPS value and increases free cash flow while maintaining modest leverage.

At this time, I'd like to turn the call over to the operator for a few questions.

[Operator Instructions] The first question comes from Tom Wadewitz with UBS.

This is Mike Triano on for Tom. And congratulations on the deal. Wondering if you could just help us a little more with the accretion build? Just what type of operating margin should we assume for FirstFleet? And then on the additional interest expense, how much should we bake into our models related to the deal?

Sure. Mike, thanks for joining. This is Chris. In terms of margins, I mean, FirstFleet has continued to be profitable across all cycles. Durable margins very much reflective of having a 100% Dedicated model.

That said, their margins are a bit lower than what we typically see from our Dedicated solution. Some of that's given some slight difference in mix, more trailer pools, given some of the trailer intensity of their business and other factors, including having some more operating leases and whatnot, but when you look at that and what we have mentioned as an $18 million midpoint of synergies, which is about 3% of revenue, there's a good opportunity over time here to expand margins and get that closer to what we expect. So that's on the margin front.

In terms of the interest expense, we're not disclosing any of that at this time. We did fund this through some cash on hand, but the majority debt. And that debt is really in two parts. It's an assumption of some low-cost capital leases of the business. In addition to pulling on our revolver, which is also low cost.

Overall, this wasn't necessarily your question, but Derek did mention that we expect this to be modest leverage. I would maybe just add to that to say that we think this is going to be at our peak low 2x leverage, including pro forma synergies. So probably not as much detail as you would like it at this time, but we can provide more detail as we get into our next earnings call and provide more guidance for the company overall.

The next question comes from Jason Seidl.

Congratulations on the deal. Chris, I was wondering if you can go into the $18 million of synergies over the next 18 months and sort of -- give us sort of the buckets where you expect to derive them from? And then I guess my follow-up question would be, how does the driver pay at the new entity look versus Werner legacy Dedicated?

Yes, I'll take the first part, Derek. On the synergies, $18 million at the midpoint, really three buckets there, procurement and really just the purchasing power of Werner, and FirstFleet being able to benefit in fairly short order on a number of categories, whether that be tires, brake pads, oil filters, windshields, fuel, software and insurance. So a lot of opportunity there from just a combined purchasing power perspective.

We've gone through a lot of detail on sizing that up. Also, in terms of operating efficiencies, there's a number of them. Maybe one example is just around maintenance. We have a number of terminals that FirstFleet didn't necessarily have access to, given where their density resides. And therefore, in certain parts of the country, they were forced to have more over-the-road and third-party maintenance expense, and we can quickly flip that to in-house. So that's a big benefit.

And then also some revenue synergies, improving the backhaul value, surge capability just given other assets and resources that we have, that we know is beneficial to our Dedicated customers and can also be a strong benefit to FirstFleet's Dedicated customers and of course, opportunity to cross-sell.

And are these all evenly split? Or is one of the buckets more heavily weighted?

No, I would say this is more weighted on the cost synergy side than the revenue synergy side.

Okay. Fair enough.

Yes. And I would just add that over time, obviously, the revenue synergies will develop with time. We've got to continue to work and collaborate with the folks here, FirstFleet. But we know in fairly short order, there will be increasing opportunities on the revenue synergies. But for today, we wanted to be pretty specific with some starting guidance for everybody to come out of the gate with.

On the driver question, I'll just say this, one of the most attractive things about FirstFleet is the cultural fit between us and them. Both office driver maintenance and all of the above and probably more than anywhere on the leadership side. But obviously, with drivers, pay matters a ton. And so it certainly makes it a lot easier that their pay structures, their pay approach, philosophy, their commitment to safety and service above all else, all aligned with us.

And so when we look through their pay packages and we look through their different networks, we feel like there's a pretty hand-in-glove kind of fit here without a lot of unnecessary sort of friction points because of disparities and approach.

The next question comes from Jordan Alliger with Goldman Sachs.

Just a follow-up on a financial question. Again, I'm not sure if you can give color around it yet around either accretion range or perhaps how much EBIT or EBITDA you're buying even on a trailing basis. But then the other part of the question is, now that Dedicated is north of 50%, how do you think about the Dedicated fleet growth plans from here, especially given that maybe One-Way it could be approaching a bottom given all the supply side constraints.

Do you think there could be opportunities back in the one-way side? Or is it just going to continue to push Dedicated even perhaps at the bottom?

Yes. Perhaps I'll start on the Dedicated One-Way question, and then Chris, you can come in with more color. But I would think about it a little differently than the way you asked the question. When things start to turn like the market we're in right now, assets matter. And assets are going to matter a lot more in the coming months and coming quarters.

And so we're -- by doing an acquisition like this, we're able to both simultaneously lean into our long-term strategy about durable Dedicated business across multiple verticals with winning customers without sacrificing the size of our One-Way fleet to be able to seat those tractors and define that growth more organically.

And so a different perspective on the same question would be that we're able to maintain the size of our one-way fleet currently while significantly growing the business and significantly growing on our long-term journey relative to Dedicated so that, that one fleet is more nimble, more available more flexible as this market continues to turn, which we believe it will. And so I think it's sort of the best of both worlds.

They've got long-standing Dedicated relationships for multiple decades. We want to grow on those relationships. We know many of those people already at those customers, and we're going to continue to lean into the kind of quality that FirstFleet has already provided them.

And yes, in One-Way, we're able to continue to preserve the size of that one-way fleet and then augment it with PowerLink and the work we've been doing for some time as we continue to grow out our sort of asset-light solution within One-Way via our PowerLink. So all in, we think it's a win across the board, and we're pretty excited about it as we look forward.

Yes. And Jordan, I would just add to it. Back to your question on accretion. This is a very attractive value and asset for us. It's strategic. We think the value is right, particularly once we look at its value once it's fully synergized, we think the time is right. So we're very excited about the value. We said it was immediately accretive.

I would maybe just add to it that it's double-digit accretive. I know that doesn't maybe give you as much finite detail as you would like. But, we're pretty excited about the value that this brings to earnings immediately. And as we expand margins and take that from a very good value to a great value. So we're excited about it.

The next question comes from Bascome Majors with Susquehanna.

Just wanted to follow up on the prior question about the One-Way fleet and how it fits in the mix long term. Can you talk a little bit about how you feel that you are positioned for that upturn now. And is the message from that prior answer, like we're kind of where we want to be on an absolute size and maybe the asset side of that. And any growth will be from power only. Just thinking about, like, on an absolute basis, how you scale with the one-way side of the business as you continue to go Dedicated long term.

Yes, I'll speak to that, but only as it relates to the acquisition. Obviously, we have a call next week with -- where everybody will get another crack at us for all kinds of longer-term or more broad-based market questions. But we have previously communicated and we'll stay consistent with that messaging and that we do believe One-Way is about the size that we think it should be.

We're going to continue to work and provide that one-way solution, both to the over-the-road market, but also it serves as a surge capability within Dedicated, which now has even more demand for that surge with the acquisition itself. So if you think about a company like FirstFleet, they've done some incredible things for many, many decades and had to do so with arguably one hand tied behind their back. They didn't have the same search capabilities. They didn't have the same abilities to bring multiple products to bear and yet still build a hell of a business.

And so when we take that product and that business and combine it with what we can now bring there, we see a lot of upside across Dedicated, across One-Way across, frankly, the entire portfolio. So we're excited about it, and we're excited about the fact that on the cost synergy side, which we've referenced several times, we can do all of the above and still bring a quality priced product to our customer, while expanding our margins through our own internal hard work, not through their wallets. And so it provides an example where these two organizations coming together can just be a leaner, kind of meaner version of themselves.

The next question comes from Eric Morgan with Barclays.

Congrats on deal. I was wondering if you could, I guess, elaborate a bit on just the growth profile. The FirstFleet. I know you referenced it's been profitable through cycles. But I guess, just thinking more about kind of top line trajectory historically, looking ahead and maybe just any discussion on the commercial strategy, customer concentration and opportunities you see there?

Yes, sure. So I mean, first off, FirstFleet is not immune to the market that we've been in over the last several years, no different than Werner or anybody else. So the more recent trailing, call it, 2-year growth profile has been muted compared to historical averages. But what we do know is that the relationship they have with customers are extremely strong. While they're participating in a multi-location level at almost every one of their major customers, those customers have many more locations still available and in play.

We know that it gives the $30 billion-plus addressable market, probably closer to 40% than 30%. To be frank, and so our ability to bring a better overall solution with the density that this provides is something we're really excited about.

In Dedicated, although the assets are, in fact, Dedicated to particular customers, the more density and more other fleets you have in the neighborhood in the vicinity regionally or otherwise just gives you the opportunity to bring search capabilities in all kinds of additional capacity and really basically, simultaneously give the customer a better product, while giving ourselves a lower cost to serve. And so those are things that as we look forward, we're pretty excited about. Thank you.

Next question comes from Chris Wetherbee with Wells Fargo.

So maybe just following up a little bit on cash flow, maybe CapEx needs. And I guess maybe one follow-up question as we think about just the margin profile of the business.

I think you said -- sort of maybe it looks a little different than what your Dedicated margin looks like, obviously, the One-Way has been probably the bigger pressure on your results over the course of the last trailing 12 months or so.

So maybe if you could give us a little bit of sense of where that might fall relative to where you guys have been running. And then again, on the cash flow piece. Any CapEx needs that are unique about this business and maybe how quickly you think you can kind of take that leverage number back down once you have it accretive?

Yes. Sure. Chris, Yes, from a cash flow standpoint, this is going to be cash flow accretive. FirstFleet has strong free cash flow conversion, a lower run rate of CapEx than typically what we see. So this is going to be very positive, great value from a cash flow standpoint. I mentioned kind of that low 2x peak leverage, including pro forma synergies. We do expect to prioritize debt reduction and be able to delever from there. And then you were also asking about margins.

I don't know that there's really much more to say than what we've already said here other than they're good margins. It's a profitable business throughout all cycles, including this much prolonged down cycle. And we have opportunity to expand it even more to the tune of 3% of revenue once we get fully synergized. And none of that is putting the high service focus that FirstFleet has with its customers. And that we certainly value and that they do a great job with.

So this is very low to midline fruit, if you will, on opportunities to expand margin. And we're excited about what that financial model looks like and relative to what we expect from our own business.

The next question comes from Scott Group with Wolfe Research.

Can you -- maybe a different version of the same question we've all asked me. Can you just share like the purchase multiple on EBITDA. Chris, your comment about double-digit accretion, is that pre- or post-synergy? And then, Derek, you guys did a few big deals in recent years. What's been experienced with revenue retention on those deals? And do you think this -- any reason to think this one is any different, better or worse?

Yes, I'll start, I guess, on the revenue retention side, you're right, we've done four deals to date. We've had pretty good success with revenue retention on those. Two were kind of trucking or truckload operations. One was a Final Mile company and the last was ReedTMS, which was predominantly a brokerage logistics organization.

I think in three of the four revenues were up year-over-year at the 1-year anniversary mark. One of them was not but that had more to do with the big and bulky kind of crash that took place after COVID. So I think our experience has been pretty solid. This is a large asset-intensive business, and so it's all about staying close to the drivers. As I mentioned earlier, one of the best things in this deal as a couple of things come to note.

One, one is long-term customer relationships over multiple decades, especially at the top end of the customer list. We're going to stand by those commitments and those customers. We're going to work with FirstFleet to give them even better support than maybe they had when they were trying to go it alone. And we expect to keep those customers. We're going to work hard to make sure they earn their trust.

The other one is on the driver side. If you had a lot of frictional issues going with drivers like meeting our spec is fundamentally different. Our pay packages are fundamentally different. You'd have issues, but they're not, and we're not changing those.

As we think about the synergies, synergies don't come from changing driver pay or messing with people's W-2. It's about blocking and tackling maintenance tires, tractors, trailers, fuel. And that's the best kind of synergies because we can just go out and have more purchasing power and kind of improve the experience of the customer, driver and everybody in between. So yes, I would tell you, Scott, I'm pretty confident in the revenue retention on this one. Obviously, it takes real work and actions are louder than words, and so we're going to go to work.

And Scott, just to answer the other parts of your question, the comments about immediate accretion, double digits. That's pre-synergies. So again, very attractive value. I know everybody is trying to get more granular on TEV multiples and EBITDA.

Again, I would just say it's $615 million of LTM revenue. It's $245 million on the operating company. There was also $37.8 million, but that's more for 11 properties and certain acquired real estate. It's attractive value.

I would say that it's a mid-single-digit TEV multiple, but that's based on management, forward-looking estimates of adjusted EBITDA. So I'm not going to get too granular on that because there's implications we're doing so. But we're excited about the value of this acquisition.

Okay. I totally get it that you guys don't want to share. Maybe just one thought, just thinking out loud. Maybe on earnings instead of giving the accretion on this, maybe we get like more of like a consolidated earnings guide or something like that for '26, maybe that could be more helpful just as a thought.

Next question comes from Reed Seay with Stephens.

Earlier, you mentioned that $18 million of synergies was a midpoint. If you could maybe give what that range is the bottom and the top end and maybe what needs to happen to be at that bottom end or what needs to go well to be at that top end. And then, as we think about the fleet that you bought, the 2,400 trucks, do you -- what's the average age that we can think about as we try to kind of compare what this transaction looks like compared to the book value of the operating fleet that you're buying.

Yes. I'll take the synergy topic. Yes, we said $18 million is the midpoint. I won't get too granular on you. I think the range could be plus or minus 10% from there. I would also say that we haven't factored in everything. This is not fully exhaustive. It's -- and it's prior to us settling into this business and getting to know the business, engaging with customers, with associates, with drivers which we're excited to do before we get too focused on integration.

So we're going to do this right and take our time to realize value, but do it in a thoughtful way. So we've talked about really the buckets in doing that, purchasing power, procurement, operating efficiencies, as well as over time, some revenue synergies that are also multipronged. So I think this is thoughtful. It's not overly comprehensive. Once we get, call it, 18 months to 2 years under a belt, or even sooner, we may see other opportunities.

But at this point, this is what we've sized up, and we're excited to get closer to this business and the talent and the customers to reassess and see how we can collaborate to harvest additional value while servicing our customers very, very well.

And then if you have any color on maybe the book value of the fleet that you're buying here?

No, I don't have any specifics to share with you at this time on book value of the fleet.

As it relates to -- you mentioned earlier, age and things like that, it's similar. There's going to be some opportunity for us to freshen the fleet over time, obviously. And we've mentioned earlier that they have a large portion of their tractor fleet that's in operating the capital leases. Over time, that model may change based on our ability to infuse equipment into the fleet.

And again, this is first call, you're going to get another crack in a week, and we'll have more color as we go. But we're -- right now, the good point is -- or the good thing is that this is not a fixer upper, whether that's relative to fleet age, customer mix. or current profitability in what has been a difficult market up to this point. This is one that we have line of sight to the improvements that can be made and the enhancements that we can bring to the table, which is part of what lends itself to our -- or causes our excitement over.

Next question comes from Ravi Shanker with Morgan Stanley.

How long have you been thinking of doing a Dedicated deal like this? And kind of how long have you been talking to first lean in particular? And also, did you think of diversifying into any other parts of trucking, maybe outside of your core competency even instead of doubling down on Dedicated?

Yes, Ravi, we talk a lot and spend a lot of time looking at opportunities across a variety of -- across our portfolio. We've been pretty clear about our desire to continue to lean into and grow the non-asset part of our portfolio, and we've done so, and we'll continue to do that organically and be open-minded otherwise.

But pure-play Dedicated opportunities, especially of high quality with the kind of culture and kind of customer mix that FirstFleet have don't come around very often. So we've been in conversations for many months. This took a long time to come together. And we're very excited to get to what we refer to now as the starting line, not the finish line. Actually sitting in Murfreesboro right now at headquarters and Paul Wilson, one of the family members and owners of FirstFleet, and I will be hitting the road here shortly, and we're going to work today.

So multiple months. As we look forward, we're going to be open for business, but obviously, we've got some digestion to do as well as it relates to M&A. And we'll continue to put our laser focus right now on integrating and working with FirstFleet to attack the synergies and other things that we've been talking about throughout the call.

Anything on diversifying into other segments potentially?

Ravi, I apologize, both times, I'm not hearing the question clearly. Would you mind repeating?

Any thoughts on potentially diversifying or did you consider diversifying away from Dedicator, away from truckload into other segments or other areas within truckload that you aren't present in right now?

Well, the short answer would be absolutely. We've had multiple kind of all day, multi-day kind of strategy sessions on what ifs and if then, and then modeling. But again, despite whatever planning you may do at times and all of the strategic thoughts you may have. Sometimes, when an asset of this quality is available and able to be actionable, you move on it quickly.

This, we feel, fits hand in glove with our core strategy, which is to be an elite Dedicated carrier in the United States, providing service quality to large enterprise customers and complex delivery solutions. And that's what this is. It's right down the middle of the fairway.

That's what was so attractive about it and it only got better, the more we got to know it and the further we were able to understand both those long-term relationships, but also the people that drove those relationships that exist in the first place, they've got some long-tenured folks in this building and some really good folks and people that have been spending time with all morning, and we're excited to hit the ground running.

The last question comes from Ken Hoexter with Bank of America.

Congrats on the acquisition. Derek, a couple here on -- it sounds like the fleet is no different in terms of age. So there's -- I just want to make sure there's no CapEx catch-up. It sounds like they had op leases. Do you have to kind of spend money to reduce the age or it sounds like it's in line. Is there any rebranding? Are you going to keep their brand name? Are you going to rebrand as Werner?

And I guess maybe your thoughts on the fleet size long term. So three questions in there, right? So the fleet size, you moved to suspend 350 OTR trucks. Do you now take those, move them more into Dedicated? Just want to understand your thought on the fleet size post acquisition here.

Yes, Ken, I appreciate it. I appreciate the questions. Yes, the fleet age, it's a little older than the Werner fleet age, but not by any meaningful or material amount. We don't believe it creates any kind of major CapEx catch-up. We already had been planning and obviously working on our 2026 order for some time and knowing full well that we had -- kind of a high level of probability of having FirstFleet as part of the mix.

So we're in pretty good shape, and we'll be coming out with CapEx guidance and other things next week on the call, but I don't expect anything that's going to alarm anyone given the overall size of the new combined fleet. As it relates to what you asked about...

Rebrand.

In relation to rebrand. So that's a delicate thing. If you look at our prior four acquisitions in two of the four, we rebranded and rebranded fairly short -- in short order.

FirstFleet, again, going back to something we talked about a lot has a very long-standing and deeply held relationship with customers. So it's going to be a collaborative conversation between us, FirstFleet and frankly, even some of the customer base. But if you also think about some of the synergies and some of the efficiencies of more of a universal trailer fleet, the asset flexibility, if you will, of universal assets. It's certainly on the table.

We are not prepared today to make a final decision on that other than for now, FirstFleet's name is not changing. And we're going to continue to get to know these customers and these relationships better, serve them exactly as they are today or better with now an expanded portfolio that we can bring to bear. And over time, we will continue to evaluate that branding question. And it will be at the forefront, but -- but the outcome will be determined on economics, efficiencies and the ability to serve not based on any particular, ego-driven Werner-only kind of approach. That's just not the way we think about the business. We want to do what's best for our customers and our associates and ultimately, our shareholders.

And last one was just the size...

Yes, I would just add to it to say that there isn't any CapEx catch-up as you referred to it that we're highlighting here. And in terms of the age difference, just keep in mind, this is nearly 100% Dedicated business, shorter length of haul, and it makes sense to have a fleet that's a bit older. Might be comparable in terms of usage and miles. So as Derek said, there isn't anything concerning or that we need to change, alter or fix relative to the quality of the equipment.

And size of the fleet long term with the combo of these? Do you shrink the fit? Do you increase -- do you take those OTR trucks and move them into Dedicated? Any thoughts on your long-term fleet thoughts?

Yes, Ken, I would ask if you don't mind, I understand the question, and it's a valid. But with an earnings call less than a week away, that feels more to me like a long-term strategy market question than it does specific to the acquisition. I can tell you right now, like there's no thoughts of shrinking this fleet at FirstFleet or our existing Dedicated fleet.

But as we are in a market that is moving fairly quickly. There's always going to be dialogue that we need to have as that market moves with our customers about where that market is headed. And at times, that does mean that you have to make difficult decisions relative to where you stay and what else you may do. But again, I'm more than happy to answer greater depth next week on the call about market-related questions.

This concludes our question-and-answer session. I would like to turn the conference back over to Derek Leathers for any closing remarks. Please go ahead.

Yes. Thank you. I just want to thank everybody for joining us today, taking time out of your morning to ask us and spend time with us on these important questions. I want to specifically thank all of the Wilson family for how they've handled themselves from day 1 through yesterday's closing.

We are excited to work with them as we go forward as well as thank the Werner team that put in a considerable amount of time and effort throughout the due diligence. This is an exciting time for Werner. We think this makes us a bigger, stronger, more robust version of ourselves, and we look forward to proving that in the coming quarters and years. Thank you for attending and being with us today.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

All right. We're going to go ahead and get started with the next presentation. I'm Tom Wadewitz. I cover freight transports at UBS. It's a pleasure to have Werner with us today, Derek Leathers and Chris Wikoff, Derek's CEO; and Chris is CFO. We're going to follow with the fireside chat format.

And I guess just to get things started. So Derek and Chris, thanks so much for joining us. What are you seeing in terms of the freight markets these days? I think the commentary we've heard from some of the LTL updates that talk about November tonnage have been kind of muted. October seemed kind of muted. I think truckload, there's like some evidence of peak season, but just not maybe a lot to get excited about. So how do you see -- does that kind of match up with what you're seeing? And how are you thinking about freight activity at the present time?

Yes, Tom. So first off, thanks for having us. We enjoy being here every year. Yes, as far as peak season, so we talked about this on our third quarter call a little bit. Last year was the first sort of year in several years that we saw what I would call a normalized peak season where we both saw volume up and the ability to be compensated for the additional work involved in delivering all of that extra volume. We -- on the third quarter call, we're kind of mostly through, but not completely through all of our peak season conversations with customers. And at the time, we talked about this one shaping up to be very similar to a year ago. So normal seasonality, normal opportunity for peak with a few differences that were mostly self-directed by us. We've always been a bit of an outsized exposure to the West Coast peak and maybe underrepresented in some of the peak projects more in the interior.

This year, although the opportunity relative to rate is outsized on the West Coast, so is the cost to serve because you've got to continue to reposition those assets back to the West Coast. And so this year, we had what we believe to be a more strategic, more thoughtful kind of approach to peak. The net of all of that is that at this point, volume is still shaping up as expected to be similar to flat to slightly up from a year ago. The opportunity from a pricing perspective is as attractive as it was a year ago. So we like the setup. One big difference, and it could play a little bit into your opening comments about tonnage being more muted in October, November. One big difference was peak season this year from the beginning was sort of expressed as being later in the year by our core customers, and it's played out that way. So we knew going into it that the ramp-up would be later than normal. And as a result, more freight compressed into a shorter time frame. And it's playing out that way.

And so very, very busy right now, but that is a seasonal comment more than anything. But I think it's reflective of both the consumer holding up a little better than maybe even our customers expected them to do as well as a little bit of the overall flight to quality, which I'm sure we'll talk about more as the session continues with all of the enforcement and regulatory actions happening around us, I think customers are, in fact, looking to have a more stable provider base than maybe they realized they had just a few short months ago.

Okay. And so in terms of maybe a little later start to the peak activity, that's kind of offset by -- so maybe the same amount of overall peaking activity, but just over a more compressed period of time.

Yes, I think so. I mean I think customers' forecasting has continued to improve year-over-year. And I think that drives part of this later start because they get a better feel for exactly what they need to move and where they need to move it to. I suspect in their enterprises, AI is having an impact as well in terms of getting better at these predictions. I think some of it was shippers keeping dry powder just out of the same concern for the consumer that, frankly, we had as well. But if you look at like the Black Friday early returns, they're positive year-over-year, and they exceeded expectations year-over-year in most categories. And I think the consumer has, in fact, stayed more resilient. So there's sort of a race to replenish right now and keep stuff on the shelf from now through the end of the year.

And then the last thing that we've talked about for several years is there's this ongoing growth in sort of that gift card market that pushes peak even into early January in some cases because replenishment extends further than it did maybe 10 years ago as people more and more are opening up gift cards on Christmas Day and then go and spending those cards versus what they might have done 10 years ago where there was actual gifts under the tree.

So I mean your commentary sounds like at least somewhat constructive on peak, right? Like you're kind of saying, well, Black Friday sales were pretty good. Customers racing to restock. It sound like constructive comments. Is that a little better than you thought? Or is that just?

I think it's a fair read. I mean I think when we were sitting in mid-summer, the concern I had, and I don't think I was alone with that concern was just how the consumer was going to hold up between high interest rates, sort of inflationary pressure at the doorstep, just tariff noise and uncertainty that caused consumers to probably be, in my view, maybe more hesitant. We were monitoring like delinquency rates on credit and overall sort of debt load of the consumer. You put all that together, in mid-summer, we would have been a little concerned about how peak might have shaped up.

As we sit here today, we're definitely more constructive than we were then. But to be fair, we're probably a little more constructive than we were even on the call for Q3 because it's one thing to have all of the projections from your customer. It's another thing for those projections to come true. And those are actually coming through at pace on volume as predicted. And so that's encouraging. And we think, if anything, there could be some upside to what we've talked about up until now, but we'll have to let it play out before we know for sure.

Okay. So it seems like it's shaping up to risk is a little more to the upside than downside on.

I think that's right. Yes, I think that's right. The one call out, again, I just want to go back to my West Coast comment. There is a trade-off where we are consciously making relative to the rate side of peak in that West Coast is by far the highest premium dollar availability during peak season, but it's also by far the highest cost to serve because of the distances involved in getting back to the West Coast to be able to serve the next round of imports or whether it's already domestically warehoused. And this year, we have a more distributed peak season portfolio. It's our belief that, that's going to be better economically with -- even though the premiums won't be quite as extreme by having a lower exposure to the West Coast than we did previously.

So you have a lower exposure to West Coast this year, and that helps you on cost to serve a little bit?

It helps a lot on cost to serve, and you have a little less of a premium involved with it because your cost to serve is less, but it doesn't hurt you on the economics at all. And we actually think if we can continue on the current path that the opportunity for better economics are there.

What about the -- I mean, I guess it's peaks dominating activity. How do you think about what this means maybe for your freight view going into '26?

Yes. I mean I think we have a whirlwind of backdrop issues that are kind of circulating right now relative to the freight view in '26. It's certainly not -- we're not looking at '26 and focusing all of our attention on some sort of major demand inflection. I think the economy is still relatively moving sideways at the moment. And so we've got to build our thought process around not banking on a major demand inflection. However, on the supply side, there is just a whirlwind of activity. And so when we think about the friction that's already happening in the network, not just our network, but nationally relative to some of the supply impacts and that are taking place, it sets a better stage going into 2026 bid season than we've had in previous years.

It's been several years since we've had enough sort of frictional activity in Q4 to set the stage for more constructive conversations going into the '26 bid season. This year is shaping up in better shape than that. And so that's the sort of supply-demand kind of dynamic. The other reality is just bankruptcies are continuing to rise and the duress of the industry is more and more apparent. And so we're having very frank and open discussions with our shippers about the sustainability of it all. Like if you really want to continue down this path over the longer term, it's only inevitable that you're going to push enough people under that those that are left standing, of course, we will be one, are going to be in shorter and shorter supply.

And so we see shippers that are willing and able to take some sort of derisking approaches to making sure that they align with a couple of quality carriers in their portfolio to build a more strategic view, whereas for 2 straight years, it's sort of been here's my 15 bid criteria and price 1 through 14 and 15 might be some one random other item. And there's a little bit of a more holistic perspective going on out there right now.

So what are you seeing to the extent you have visibility on 2026 bid season? What's your kind of look during 4Q? What do you see so far?

Yes. It's very early, obviously, like there's -- the 2026 bid season hasn't even really kicked off in earnest. What we are seeing is the ability to work with shippers on this derisking model, which has not been apparent for a couple of 3 years in a row, whereby you can take some portion of the bid off-line prior to the bid, secure some assurances on that piece of the business. Those are what I would call our sort of connective tissue of our network, where it's important to us, but it's also important to them to derisk going into the bid season with the entire book of business.

And so for the first time in several years, we're able to pull some freight off ahead of the bid, take small marginal type increases on that piece of business. That bodes very well for us from a stability perspective. It derisks for them what could or could not be coming during the bid season relative to how much tighter this might get. And I think so for both parties, it's a good strategic decision. That has not been a conversation that was happening over the last couple of years at all. And so I think that's a window into where we're at in the market. We got a little ways to go before this thing actually gets tight enough for what I would call meaningful change, but it would be our expectation that we've had 5 straight quarters of increase in rate per mile in our one-way sort of van division, but they've been very minor, minor changes.

We cannot afford as an industry for that to be as minor as they've been leading up to this. So now the debate is going to be how big is needed. And I would tell you that our view on that and their view on that still has some time to percolate.

Right. Okay. So when you derisk something, are you getting like 1%, 2% rates on it? Or are you getting more than that?

It depends. It's a case-by-case basis really. I would say, in general, it's lower than mid-single digit. It could be bigger than 2%, but it's not 5%, 6%, 7% if you're derisking something. And so if -- it doesn't mean that those conversations don't happen, and it doesn't mean there's not lane-specific levels where those kind of numbers do happen, but that would be the minority of cases. Most of it is going to be what I would call really maybe marginal increase in rate in exchange for a small portfolio of that bid to be pulled off. Maybe some perspective would make sense there.

So if we're talking about a bid that has $30 million of exposure for us, that derisking conversation might start at $10 million, but it probably settles at something like $5 million to $7 million that's pulled off ahead of the bid so that we have stability, they have stability and then we can go into the bid and those numbers in the bid might be dramatically different than what that derisk exercise looked like. But it's still a good exercise for us because it allows us to keep the core of the network in place as we then go and reshuffle the deck, if you will, through the bid process.

Right. Okay. Yes, that makes a lot of sense. So -- what's your best guess on kind of what the '26 bid season comes out to? Do you think you get mid-single digits, 5%, 6% rates in '26? Or I know it's a bit of a guess given it's a ways out and a lot of moving parts, but what's your thought?

Yes. I mean we tend to shy away from trying to get too specific on it. But I think all of the dialogues are going to be -- that's going to be the range that's in discussion. The question is going to be believers and nonbelievers, right? I mean there's going to be some shippers that are going to aggressively look to take one more bite at that apple. And I suspect our exposure to those shippers will be decreased through the bid cycle. There's other shippers that recognize and realize what's happening relative to the enforcement side of the equation and their exposure to that enforcement exercise.

These folks have brands that they've built up over decades and having your brand exposed potentially to providers that are putting your brand at risk through their activities is something that I think concerns the best-in-class type shippers. And so we're having those dialogues right now. And I think the reality is it's irrefutable that current compensation levels to move freight in America is not reinvestable and it is not sustainable. And we just have to have a very professional educated debate with them. Some are going to understand that and believe that and support that, and they're going to grow in their presence in our portfolio. Others are going to take a contrarian view and probably decrease in their exposure in our portfolio. That's why we guided.

If you look at Q3 to Q4, we changed our guidance down relative to truck count because this is the time for discipline. And so we revised our guidance to negative 2% to 0%. And I'm here today to tell you that we will be below that guidance range. We will -- we are taking discipline serious right now. We're analyzing our One-Way network very aggressively, and we're looking to configure that one-way network for the turn and put those assets in the places where we think they matter the most, where they support our long-term vision of how One-Way in our network needs to operate, continue to focus on sort of the North-South Mexico cross-border franchise, continue to lean into our expedited services franchise. And as that continues to grow, we're going to put more assets towards the more sustainable, more profitable end of the spectrum and less and less assets in the One-Way kind of random commoditized end of the network.

We can still help and support our customers there through PowerLink, our Power Only solution, and we can bring to bear solutions like Intermodal and other things. But that network is not one that shippers have placed in my view sufficient value on for a long enough period of time that we've got to make some tough decisions on what One-Way looks like in our future, but yet still leave enough exposure to that marketplace through this market turn to be able to participate and reap the rewards as things tighten up.

So maybe I just want to refresh again what we had talked about for 4Q truck count. I don't know if you were talking total or just One-Way and then kind of how that would -- now you think that's even a little lower than what you thought before.

Yes, sure. So just to recap the guide for the full -- the most recent TTS fleet guide for the year was going to be down 2% to flat. And so as Derek just mentioned, we anticipate being further south below the low end, below 2%. It could be a few additional percentage points. So we even call it down 4% to 6% for total TTS fleet. Dedicated has been growing -- has growth at the end of the third quarter. Dedicated was up given new implementations in the second quarter and the third quarter. New implementations for Dedicated in the fourth quarter will be a bit light, which is very seasonal. A few shippers look to implement new fleets during peak. But we've continued to pay for some new wins. And even into the first quarter, we'll have some additional new wins that we'll be implementing.

But the reduction, as Derek just said, is largely in the One-Way space. It's all aimed at margin expansion, will translate to margin expansion in 2026. But it's some meaningful and intentional moves being very selective with our shippers, the type of freight, the geography of freight and leaning our assets more into expedited cross-border specialized aspects of One-Way. And those that are more on the spectrum of more commoditized in One-Way, we can leverage our PowerLink offerings, a more asset-light offering within logistics to support essentially a One-Way offering. But all of that combined does translate to a smaller One-Way fleet, smaller TTS fleet ending the year.

So the number you're saying it was kind of flat to down 2% for total TTS and that's like year-end versus prior year-end? Or what's the?

Yes. That's correct.

Okay. And so now that instead of being flat to down 2% might be down 4% to 6%.

Correct.

Okay. So that's a pretty big change then, especially if it's all in One-Way.

Yes. Correct. It feeds the total TTS number, but it will appear almost exclusively in One-Way. And that's just part of, like I said, I mean, we have -- we've been given a very clear message by the marketplace as to the value placed on One-Way, and we're responding to that message accordingly. We're going to make sure we do what's right for margin expansion going into 2026, structuring a leaner, lower cost to serve One-Way network at the size that it needs to be and move forward from there. I mean you remind people that over a 10-year period, Dedicated outperforms One-Way 8 out of 10 years anyway.

And yes, we're aware that the years that it doesn't is the first couple of years of a turn. So we don't want to eliminate One-Way right now, the wrong time to do it. But we want to have a leaner, meaner version of One-Way with a higher expedited exposure, higher cross-border exposure where we believe the fruits of our labor are more appreciated.

So how high are you comfortable being in terms of like mix of total fleet that's dedicated? Ken, I think you've maybe that's increased over time. But I mean, are you comfortable with 75% Dedicated versus One-Way? Or is it kind of like you get up to 70%, that's kind of the peak? Or what's -- is there a...

I think the better way for us to think about it is sort of we will ratchet it, not predetermine a final number. But I think at this point, we're very comfortable saying that we would be willing to be 70%. And right now, we're sort of in that 65%, 66% range, but we'd be more than willing for it to be 70%. Over time, we think that number could be higher. There was a time not too long ago where we thought 65% was kind of the upper limit because of all of our ability to surge with our One-Way fleet. But I think we underestimated our ability to cross-serve amongst dedicated fleets and the synergies that we get with more and more density in dedicated in certain geographic areas. And so we've got multiple solutions that we can bring to bear in order to surge and support our Dedicated customers that are advantageous for them but also for our bottom line.

And so 70% is something I'd be comfortable with today. I can assure you when we get to 70%, we'll be reexamining those levels and asking the question whether we can go further. And I think we can. I don't think there's any hard stop at any point. What we really want to do is make sure everything we do is in a less commoditized area of the business. So Dedicated is obvious. So is Mexico cross-border, many fewer people can do that very well. It's a much more quality competition set that you're faced with in Mexico cross-border. And then building and executing on truly team expedited afraid is difficult work. We're good at it. We're getting better at it every day. And so we're going to continue to lean in that direction as well.

What percent of your runway would be team? Roughly.

Teams take various forms. So I want to be careful with that. I mean -- so we have developmental teams, right, teams that are newly formed that are joining and becoming true team expedited over time. We do a lot of leader teams. So like our leaders lead those new drivers into the fleet. They've already been to schooling. They've already been to 4 days of orientation. They go out over the road and they're in an observation mode only for a significant period of time.

But then at some point, we want them to operate more like a leader team, which is not dispatched at a true team level, but that's part of that mix. If you take all of the different team-like capacity, so that also all of our engineered solutions where we're slip seating a truck, that truck is essentially a team truck, but it's got 2 different drivers and 2 different shifts. You put all that together and you're kind of bumping 50%, let's say. And that number, we think, has some ability to grow.

Okay. So yes, it's a pretty big exposure on that. What -- Chris, if I go back to like Dedicated fleet 4Q versus 3Q, is that -- you're saying maybe like the growth or the ramp-up of new fleets is a little slower, like the pipeline is good, but the.

Yes. Pipeline continues to be very strong in Dedicated. It just -- the fourth quarter is just typically one where there's fewer new implementations. So certainly, Dedicated fleet is not going backwards. Just for the fourth quarter sequentially, we're just saying it would be flat or modestly up. Just not seeing the sequential increase in the fleet that we saw in the second quarter and in the third quarter given those more significant new fleets that we were implementing.

I mean the simple reality is fourth quarter is not a time to implement really anything brand new because the house is somewhat on fire in terms of freight volumes and everything else. And so you just got to focus on delivering peak and doing it at a very high level.

Yes, makes sense. So if I put this together, so you got some optimism on the way peak is playing out. I think some -- your own activities to reduce the One-Way fleet a bit. Is this kind of positive to how you were thinking about earnings performance 4Q? Is this a little negative to how you were thinking about it before? Or is this kind of broadly on track with what you were thinking about it when you reported 3Q?

Yes. I think -- so Q4 has got a lot of moving parts, obviously. Peak is shaping up as expected with maybe a slight opportunity to the positive. The restructuring type work, the reanalysis work of fleet size and everything represents short-term headwinds, like you do face headwinds when you're going through rightsizing a fleet and getting all of the assets in the right position for the best entry point into 2026. So the wash is probably as expected for Q4, maybe a slight bigger headwind than tailwind, but that's very short term in nature.

Some of the positives are we've got through the nut hole on the implementation cost largely that we've talked about for 2 quarters in a row with some of the new dedicated verticals that we've entered into. And now we kind of know those businesses better. They're performing as expected. And as we go into '26, we're in a clean slate then moving forward with those fleets and how they were originally modeled.

And the One-Way production, that was down year-over-year in the third quarter. That was more temporary in nature. We talked about that on the earnings call. And so that is back to where we want it to be in the fourth quarter. So sequentially, Q3 to Q4, that's more of a tailwind from both a revenue and an operating income perspective. And that's not to say that there isn't further opportunity to grow production on the One-Way side, particularly as that fleet becomes leaner and meaner in 2026. But relative to where we were in the third quarter, we're back to kind of pre-Q3 levels.

So how do you think about -- I think that OR in 3Q, there are a couple of items you identified and say, let's take this out to get kind of a better picture on TTS OR how do you think about like OR progression in 4Q? Is that kind of -- is it reasonable to expect?

Sequentially improved.

Sequentially improved and that's ex the items you identified in 3Q or...

The One-Way production being a bigger driver of that sequential improvement.

So what's kind of the right base number in 3Q that we should look off of, do you recall for 3Q TTS OR where you say there's some improvement in 4Q?

Yes. I think with -- excluding the -- some of the dedicated start-up, we were more in a 2% to 3% range.

Okay. So you're kind of, call it, 97.5% OR and maybe off that level, you can see some improvement in 4Q. Is that ballpark?

Yes.

Okay. All right. How do you look at 2026 OR? I mean, I know the pricing environment is paramount, right? So lacking perfect visibility on that, it's hard to be prescriptive on OR. But I guess, inflation, inflation has been challenged in the backdrop the last couple of years. Is inflation less? Is that helpful? Is there kind of more idiosyncratic you do that can help the OR? I mean maybe if you assume a price -- let's say, you get 4% rate, 3% to 4% rates across your kind of TTS fleet, I don't know if that's like a reasonable assumption. What can you do on the OR side?

Yes, certainly, rate matters. So 3%, 4%, north of mid-single digits, that's all helpful. And again, given the enforcement backdrop and other factors, it sets us up better than prior -- recent prior periods and prior years to achieve a more significant rate lift in '26. But there's other factors as well. You talked about inflation. Inflation is -- has moderated a bit compared to prior years, but there's still pockets of inflation. We see it in insurance and cost per claim in supplies and maintenance, cost of equipment, particularly with tariffs and the backdrop there as well as in employee benefits and the cost of health care.

So there's certainly pockets of inflation. The combatant to inflation is multipronged. It's cost discipline, rate, as we said, but also operating efficiency, whether that's in production or in other operational gains, including synergies that we can get from our multiyear investment in technology. So all of those are in play in 2026, aimed at margin expansion. On the cost discipline side, what we've done over the last couple of years of, call it, last few years actually of about $50 million in cost takeout per year, most of that being structural and sustainable.

In any one given year, really what that's doing is it's combating inflation. The cumulative effect of that helps for sure. And again, we've been doing that for 3 years. So we'll continue to lean into that discipline. But rate will help. And we were just talking about production, particularly in One-Way, improving miles per truck, sweating the assets as we revamp the fleet a bit over the coming months in one way, and that will help as well.

So if you get 3% to 4% rates, if you execute on your program, given what you know to date, can you get 150, 200 basis points in TTS margin improvement? Is that ballpark? Do you think it's a lot better? Do you think it's tough to get to that level?

No. I think the expectation is roughly at that level -- with that level of rate. We're not putting that rate out there as the foregone conclusion as the upper limit, obviously.

You'd like to be better, yes.

Yes. We're going to do what we can do, and we're going to have the discipline, and we're going to demonstrate the discipline to make sure and prioritize rate over volume right now. It's the necessary point in the cycle that we're in. We have to focus on making sure that we're compensated for the work we do. The work is not getting any easier. And in fact, with length of haul continuing to compress nationally, the work, the amount of touches, the amount of drops hooks, unloads and loads per revenue dollar is increasing. So the work is actually more and more difficult over time. And that's why we really continue to lean into the dedicated model.

We do believe, by the way, in a tightening market, Dedicated isn't some anchor. We actually are excited about the opportunity for Dedicated to demonstrate margin expansion itself. You get that through better backhaul opportunities at a better rate with more backhauls being filled than moving empty. You get it through more opportunities for Dedicated -- the Dedicated pipeline to become even more robust. You get it through yielding underperforming dedicated fleets out of the network and replacing it with better performing fleets, all of which will be part of the 2026 game plan.

So is the kind of ballpark what I mentioned reasonable? Or is it?

Yes, I think it's reasonable.

Okay. right.

I would call to just remind everybody, 60% of the business has been in the first half. Most of those implementations don't start until Q2. So when you talk about this margin expansion and everything, we're talking about sort of the back half loaded because of when the new rates actually hit the street, so to speak, in terms of billing at the new level.

Sure. Yes, totally makes sense. If there are any questions, please raise your hand. I'm happy to take questions from the room. If you put them -- use the QR code, I can see it on the iPad too. But -- so yes, just let me know if you have any. On the -- I want to shift to -- well, I guess we should cover the regulatory side in some more detail and then I want to talk about, I guess -- so we're in the logistics, which I inadvertently referred to as VAS on a quarterly call way back I remember you guys for a long time. There you go. throw back.

How are you thinking about -- I hear so there -- the administration seems very focused on their initiatives, DOT and FMCSA to bring out the questionable capacity and focus on drivers and getting the right drivers in the market and the wrong drivers out. So it seems like there's a great intention and a lot of focus. The debate I hear is like, well, enforcement, enforcement. Enforcement is the key, right, to whether there is traction and how much traction on this. How do you think about -- what does enforcement mean? Who's doing the enforcement, who needs to stay focused to get that capacity out? How do you think about what's the way this all plays out?

Yes. So I think it depends on the regulatory issue, right? So there's a handful of different issues simultaneously playing out right now. So ELP was the first one to kind of hit the news. That was back in June, ramped in July. It's been greater enforcement each month subsequent to July, currently running at about a 30,000 annualized run rate of enforcement for putting people out of service for not being able to speak English. We think that's a critical safety issue and one that needs to continue to be enforced, and we're excited that they're doing it. I think it will only ramp further from here.

The question is, I don't know that the numbers will show through at a greater and greater number because I think people are getting the message that it is going to be enforced. But that is the state one, right? So that's -- when you talk about is it federal, is it state, that one generally gets enforced at waysides or way stations and roadside inspections, and it really is up to each state to decide, unfortunately, their appetite for enforcement. But as that enforcement ramps in more states, there's just nowhere to go from here. And so it really has the impact of being a national level enforcement. If you end up with 13, 14, even 15 states enforcing it diligently, that's about all it takes to kind of shut down any kind of transcon avoidance that's taking place otherwise.

And do you think that's kind of the rough number of states that are enforcing it?

Yes. Right now, I think that's right. But it's increasing. We're seeing increased enforcement by new states kind of each month. And so I don't think you'll see decreasing enforcement. And I think the focus of the administration is such that if they've shown an appetite for anything, it's enforcement. And so I think they're going to continue to do so. You transition into the B1 cabotage issue, B1 drivers do a cabotage. That's more of a federal enforcement issue, more of a homeland security and/or CBP type issue. That enforcement will take many, many different paths.

But we have seen even just as recently as this week, trucks being impounded, drivers being removed from the vehicle for running what is supposed to be an entry into the U.S. and an immediate exit. And instead, they're running domestic freight. And so that is a harder to quantify transgression because it's hard to know exactly where and when it's happening, but they've shown a willingness to dig into the data, and they are absolutely at least signaling that, that enforcement is only going to increase from here. The non-domiciled CDL issue, numbers are all over the board, but I think it's extremely comfortable to say there's 200,000 of them. I think there's more, but let's just say 200,000 non-domiciled CDLs with the vast majority of those being issued outside of federal guidelines.

There's a stay on the rule, but yet after the stay on the rule took place, individual states have already announced they're no longer issuing non-domiciled CDLs. So whether there's a stay or not, if the state makes the decision to not issue those, then that pretty much puts a cap on that capacity going forward. So we applaud those efforts. We think that rule was exploited. We think it has put the motoring public at risk, and we think it does need to see increased enforcement. Next layer is the electronic logging. They've finally wrapped their arms around the amount of fraud that's taken place in the electronic logging environment. We obviously operate in every one of these categories I've talked about legally and appropriately. And so we're excited to sell them. Do you see people encouraging enforcement of their industry. I'm really happy they're doing it because we like our positioning across the board on these issues.

But the electronic logging, we have a self-certification process in the U.S. We're the only modernized country in the world that does that. It doesn't make any sense. If electronic logs are important, certifying them is probably pretty important, too. And so they announced yesterday that they're going to launch a certification process. And that's going to take that population of electronic logging companies down considerably. I think Canada has 9 companies that control about 90% of market share. We have over 1,000 ELD providers in the U.S., all of which self-certified that they're doing it right. I think we're all comfortable saying if there's 1,000 of them, there's a whole lot of them that aren't. And so getting that cleaned up is something that we are encouraged by.

It feels like I'm missing one. ELD, ELP, B1 -- entry-level driver training. This last night, there was a DOT issued a statement that after an investigation that they've been conducting that up to 44% of the CDL schools in America are not following federal guidelines to train new drivers. I don't know that number. I haven't had time to understand where they got that number. But like I've said to many people today, let's just cut it in half or a little more than half and call it 20%. If 20% of the schools in this country are operating outside of federal guidelines and they're able to be shut down or guidelines enforced, that will have a huge dampening effect on people entering the industry and which is a positive. I mean we shouldn't allow somebody to go to a CDL school for 3 days and think that they're qualified.

We have the largest vertically integrated school network in the country at Werner, and our folks go to school for 5 to 7 weeks. After that 5 to 7 weeks, they come to Werner. We put them through 4 days of classroom additional instruction orientation, if you will. Then they go out with a leader for another 5 to 7 weeks. And then at the end of all of that, then they get the keys to a truck. You cannot go to a school for 3 days and be handed the keys and think that, that's safe for America.

So when you add it all together, what do you think the number is of drivers that potentially could get pushed out of the market over the next 1 to 2 years?

Well, first off, I'll say I think there's a lot of overlap between the various groups we just talked about. I think the same group that is at risk for ELP violations, English Language Violations is the same group that is often holding a non-domiciled CDL, which is the same group that is using ELDs that may not be completely compliant with the law. But despite all of that, I think it's very comfortable to you can get to a number of about 200,000 if you assume that it's all duplicated across the various groups for those issues, you could easily get to that number. So the bigger question is what does the over-the-road One-Way truckload environment look like in size, and it's not as big as people think. You hear lots of commentary about 3.5 million 3 million, 2.8 million. But that's inclusive of a whole bunch of dedicated fleets, a lot of private fleets, a lot of other things.

When you peel that onion back, I think you get a lot closer to 1 million to 1.5 million total drivers out there in that over-the-road competitive marketplace doing one-way freight delivery. If 200,000 of them are operating outside of the laws of the land and over time, they're able to be removed, that is a meaningful impact to supply and one that is sticky because it's enforcement-based, not financial based, and so if you can't reenter because you still have the same deficits you had prior to being exited, you're not going to reenter easily. And so it creates a significant impact on supply in over-the-road trucking, truckload in particular. Those drivers are not generally in LTL. They're not generally in dedicated, and they're certainly probably not in private fleets. They are in over-the-road kind of One-Way, you call we-haul type trucking, and that's where the pain has been by far the most across the industry.

Okay. Great. We don't have a whole lot of time left, but we can run over a little bit. What's happening in logistics? And it seems like you've been doing some pretty exciting things with technology and your ability to really automate some of the load booking process. So maybe just some kind of quick thoughts on how are you using tech and how far along you are in the use of that in logistics?

Yes. So I mean, I'll zoom out for a second and just say our tech journey is the single largest hill we've ever tried to climb from a technology standpoint. We've been doing it now for several years. We're kind of in the later innings finally. We're very excited about what it can bring to bear when we're complete. That completion will really run throughout the entirety of 2026. And it's never really complete. Obviously, you have to continue to invest and iterate and evolve. But we'll have large-scale completion, if you will, by the end of '26 for the most part. But the proof point really shows best in logistics. Logistics was the first to convert to the new tech stack. And I think the biggest proof point is that volumes are up, call it, roughly 10% and yet OpEx is down 10%. So we're able to push more through the pipe and do so at a lower cost to serve.

And logistics is still iterating their improvements in the tech stack itself. And so we're excited as we think about 2026 relative to not just logistics, but the overall portfolio as we're starting to finally get more of the headwinds removed of operating in 2 systems and being able to benefit from the tailwinds of transitioning to the new primary tech stack that we've been building for these years. A lot of that tailwind won't really take place in the asset side of the business until the latter half. Right now, it's probably a net headwind slightly, and that will continue for Q4, Q1 and most of Q2. But at some point, that flips. And we're on schedule and on budget. So those matters a lot. But it's been a very, very steep hill to climb.

In logistics, I'm equally excited going into 2026 with what's happening in intermodal in our fleet, the ability to both grow volumes and margin in Intermodal, what's happening in our Power Only, which is one of the fastest-growing portions of our business. We refer to that as PowerLink and the margins that, that business is able to produce. We continue to see opportunity to expand and grow that as we go forward. Our Final Mile business has landed several opportunities that implement really in the first half of next year that bring to bear finally the premise behind why we bought that business because we bought that business right before the big freight recession, especially in the big and bulky world. So timing wasn't great, but the learnings that we've developed and the muscle memory over time will serve us well as we go into 2026.

So overall, that logistics business looks promising. It probably crested $1 billion sometime in 2026. We think that's important, and it's an offset from a return on asset perspective to the more capital-intensive part of our business, which is TTS.

Okay. Great. With that, I think we're out of time, and we should wrap up. But Derek and Chris, thanks so much for the time, the great insights. We appreciate it, and thanks for joining us at our conference.

Thank you, Tom.

Thanks, Tom.

Good afternoon, and welcome to Werner Enterprises Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note that this event is being recorded.

I would now like to turn the conference over to Chris Neil, SVP of Pricing and Strategic Planning. Please go ahead, sir.

Good afternoon, everyone. Earlier today we issued our earnings release with our third quarter results. The release and supplemental presentation are available in the Investors section of our website at werner.com. Today's webcast is being recorded and will be available for replay later today.

Please see the disclosure statement on Slide 2 of the presentation as well as the disclaimers in our earnings release related to forward-looking statements. Today's remarks contain forward-looking statements that may involve risks, uncertainties, and other factors that could cause actual results to differ materially.

The company reports results using non-GAAP measures, which we believe provides additional information for investors to help facilitate the comparison of past and present performance. A reconciliation to the most directly comparable GAAP measures is included in the tables attached to the earnings release and in the appendix of the slide presentation. On today's call with me are Derek Leathers, Chairman and CEO; and Chris Wikoff, Executive Vice President, Treasurer, and CFO.

I will now turn the call over to Derek.

Thank you, Chris, and good afternoon, everyone. Today I will speak to what we are seeing in the market, how that is translating into our performance, and what we are doing from a strategic standpoint to further position Werner for long-term growth. While the second quarter was more favorable, the third quarter presented some challenges, namely in our One-Way business. However, there are several positive developments that we can highlight from the quarter.

In Logistics, we continued a double-digit growth trajectory with lower operating costs year-over-year, despite some anticipated change in mix. In One-Way trucking, revenue per total mile increased, the fifth consecutive quarter of year-over-year improvement. And in Dedicated, revenue grew sequentially and year-over-year as momentum continued from recent business awards and startups. We are building a foothold in new verticals like tech and aftermarket automotive parts. Our new customers are seeing the value of our strength and scale in Dedicated in these new applications, but there is a short-term upfront investment as we pursue these opportunities.

In terms of the challenges in the quarter, in Logistics we experienced margin pressure from mix changes and in One-Way we saw decreased miles per truck, although we view this as temporary as One-Way production has been recovering throughout October. Startup costs in Dedicated were more elevated compared to the second quarter and more than we anticipated. Overall, as market dynamics remain unpredictable, we are keeping focus where it matters most, on delivering superior value to our customers and positioning Werner for long-term success. We remain confident in our business fundamentals and progress that we are achieving toward our long-term goals and strategic objectives.

Moving to Slide 5. Our focus remains on 3 overarching priorities: driving growth in core business; driving operational excellence as a core competency; and driving capital efficiencies. Here's where we are on these priorities. First, driving growth in core business. Our Dedicated fleet is growing and conversations with customers regarding the cost advantages of for-hire Dedicated fleets are resonating. We've been awarded several new fleets, and the pipeline remains strong with momentum growing in new and attractive end markets of choice. Service levels are high and have been recognized recently by several strategic shippers naming Werner Dedicated Carrier of the Year.

All Logistics divisions produced top line growth the past 2 consecutive quarters, with intermodal achieving its highest quarterly revenue in 11 quarters. We continue to offer compelling solutions to our customers who are finding value and entrusting us to solve their supply chain challenges.

Second, driving operational excellence is a core competency. This priority is anchored by a culture of safety, service, reducing our cost-to-serve profile, and transforming how we do business. We continue to trend favorably on our DOT preventable accidents per million miles, which declined low-double-digit percent from Q3 of last year and year-to-date is below our 5-, 10-, and 15-year averages. Our 2025 cost savings plan is progressing as planned, and by the end of third quarter, we achieved 80% of our $45 million in cost saving target for 2025, and remain on track to reach the full goal by year end.

We are also progressing well on our technology transformation, positively impacting both efficiency and our safety performance. We've often said this is a multiyear journey, but we are in the later innings. As this takes hold, the benefits will be more evident. Our tech transformation, to say it plainly, it's a lot. The scope across our business is expansive. This is not just another tech upgrade. Rather, over the past 4 years, we've completely rebuilt our technology stack from the ground up, replacing every single component, creating a modern, scalable, secure, cloud-based platform. While others bolt on AI to their legacy systems, we built an integrated foundation that connects every part of our business from pricing and planning to safety, billing, recruiting, and more. Our Cloud First, Cloud Now strategy is paying off. It allows us to take full advantage of our new tech stack, automating processes, and layering new AI agents quickly and effectively.

For example, our largest expense in one back-office department has been lowered by 40% over the last 2 years through modernization and AI automation while maintaining full service levels. We see the benefits of this in 4 areas: safety, data, analytics, and operational efficiency. And even more important, an enhanced experience for our customers, drivers, and third-party carriers. For example, technology benefits safety and our driver experience through enhanced in-cab situational awareness and visibility, such as through real-time anticipated weather and routing technology and installing sideview cameras that talk seamlessly with other systems. The technology data and cloud storage of video also provides opportunities for enhanced training and driver development. Our third-party carriers benefit from optimized load matching based on our carrier preferences and enhanced communication. Operationally, we benefit from greater efficiencies across our business. Orchestrated intelligence is changing how we operate every day, consolidating systems, automating steps, and using AI to streamline end-to-end workflows.

We see this efficiency growing across the shipment lifecycle from pricing and load booking to route planning and invoicing. As a result, dwell time is down, planning efficiency is up, and thousands of customer and driver interactions are now handled each week by conversational AI. And most importantly, our customers benefit, as we continue to roll out the EDGE TMS platform and ecosystem across our business. Our goal is for our customers to have increasingly more information, visibility, and transparency. We've seen the financial benefits of our tech transformation reflected in Logistics, with multiple quarters of meaningful OpEx reduction year-over-year while growing volume and top line. We're already seeing progress across our TTS segment. Given the size and complexity of managing assets and drivers at scale, the lift is larger but so is the impact. Our final priority is driving capital efficiency. Despite the challenging operating environment, we continue to generate solid operating cash flow, maximize value on the sale of used equipment and invest for growth.

Let's turn to Slide 6 and discuss our third quarter results. During the quarter revenues increased 3% versus the prior year. Revenues, net of fuel, increased 4%. Adjusted EPS was negative $0.03. Adjusted operating margin was 1.4%. And adjusted TTS operating margin was 1.9%,, net of fuel, surcharge. We previously disclosed a legal settlement agreement entered into in October for $18 million related to class action litigation that had lasted more than a decade involving claims related to driver pay.

We also incurred legal fees of $3.4 million in the quarter related to this litigation. These costs represent a $0.26 negative impact to GAAP EPS, but are removed as part of adjusted EPS. In Dedicated, we're continuing to see steady momentum in adding new business while maintaining solid retention. Shipper conversations continue to be constructive as customers remain focused on reliable and flexible transportation partners who offer creative solutions with high service and scale.

In One-Way, truckload revenue per total mile increased sequentially and was up modestly again year-over-year. Contractual rate changes that became effective were mitigated by spot rates that declined in July and August before increasing in the latter part of the quarter. One-Way production was lower year-over-year driven by 3 factors: fleet composition, onboarding of new drivers, and some network softness. We rebalanced driver capacity to launch new Dedicated and specialized freight, which temporarily created inefficiencies in the One-Way network. Overall, we're now on the other side of those transitions with a more focused One-Way fleet, sustained Dedicated growth, and the flexibility of our PowerLink solution to capture higher margin peak freight as the One-Way fleet moderates into Q4. In Logistics, revenue increased sequentially and year-over-year. However, gross margin was pressured as the conclusion of higher-margin project work was replaced with contractual business. This mix change resulted in startup costs and contributed to an increase in purchase transportation.

Before Chris discusses our financial results in more detail, let's move to Slide 7 to summarize our current near-term market outlook. Demand in Q3 was below normal seasonality for most of the quarter. However, we did see improvement in One-Way trucking demand through September and so far in October. While concerns about consumer health persist, consumers remain resilient with rising retail sales and moderate inflation relief. These are supportive signs for retail. However, beneath the surface, there are other concerns. Consumer confidence is lower, real growth is modest, and many consumers are in preservation mode rather than expansion mode. As a result, we like our mix of retail being more concentrated in discount and value retailers.

Retail inventories appear to have mostly normalized. While some inventory was pulled forward ahead of Q3, nondiscretionary goods have had more consistent replenishment cycles. Spot rates trended higher starting in September and into October and are expected to follow normal seasonal patterns for the remainder of the year, with upside potential supported by ongoing capacity attrition. Customers have provided additional insights into their peak season volume estimates. Shipment forecasts vary by customer, but in total, peak volume and pricing are estimated to be similar to last year, with more balance across the network. Capacity continues to exit, and recent supply-demand tightening would suggest the pace is increasing, given developments surrounding nondomiciled CDLs, B-1 visas, and English language proficiency. As challenging operating conditions continue, we are also seeing an uptick in bankruptcies as a further limiter. We are well positioned on these issues and will benefit as the market comes more into balance.

Given the dynamic tariff backdrop, uncertainty related to the cost of Class 8 trucks remains. We expect used truck values are likely to remain stable in the near-term, particularly for assets with lower miles and remaining warranty. Class 8 net truck builds are now well below replacement levels and not only signal that a potential truckload capacity tightening could be ahead, but also that more carriers could be looking to refresh their fleet in the used equipment market.

With that, I'll turn it over to Chris to discuss our third quarter results in more detail.

Thank you, Derek. We'll continue on Slide 9. All performance comparisons here are year-over-year, unless otherwise noted. Third quarter revenues totaled $771 million, up 3%. Adjusted operating income was $10.9 million and adjusted operating margin was 1.4%. Adjusted EPS was negative $0.03. Discrete tax items negatively impacted adjusted EPS by $0.08 in the quarter. Consolidated gains on sale of property and equipment totaled $4.5 million.

Turning to Slide 10. Truckload Transportation Services total revenue for the quarter was $520 million, down 1%. Revenues,, net of fuel, surcharges, were flat year-over-year at $460 million.

TTS adjusted operating income was $8.9 million. Adjusted operating margin, net of fuel, was 1.9%, a decrease of 340 basis points. 200 basis points of the decrease is attributed to higher insurance and claims expenses and 50 basis points are associated with Dedicated startup costs. Insurance costs were lower than the previous 2 quarters, but significantly higher year-over-year as costs during the prior year quarter were below $30 million, a low point going back to the first quarter of 2022. Investments in new Dedicated fleet startups exceeded $2 million in the quarter, a $0.03 impact on EPS. Startup costs in the third quarter were higher compared to the second quarter. Timing of these costs was difficult to predict or to pass on, given the new verticals, freight and customers represented by the majority of the wins earlier in the year. We are now seeing the startup expense dropping off. So far in October, these related costs are down 75% from the third quarter run rate.

Let's turn to Slide 11 to review our fleet metrics. TTS average trucks were 7,503 during the quarter. The TTS fleet ended the quarter flat year-over-year and down 100 trucks, or 1.3% sequentially. TTS revenue per truck per week, net of fuel, decreased 0.7%, primarily due to lower miles per truck, partially offset by higher revenue per total mile. Within TTS, Dedicated revenue, net of fuel, was $292 million, up 2.5%. Dedicated represented 65% of TTS trucking revenues, up from 63% a year ago. Dedicated average trucks increased 1.2% year-over-year and 0.2% sequentially to 4,865 trucks. At quarter end, the Dedicated fleet was up 125 trucks, or 2.6% from where we started the year and represented 67% of the TTS fleet. Dedicated revenue per truck per week grew 1.3% and has increased 29 of the last 31 quarters.

Lower production in the startup fleets negatively impacted this metric by 140 basis points in the quarter. It often takes 90 days or more before new fleets meet targeted production as drivers are sourced and integrated into the fleet, equipment is positioned, and routes are optimized. In our One-Way business, for the third quarter, trucking revenue, net of fuel, was $160 million, a decrease of 3%. Average truck count of 2,638 increased 1.3% year-over-year and was up slightly on a sequential basis. However, end-of-period One-Way trucks declined 2.4% as the fleet size decreased throughout the quarter. Revenue per truck per week decreased 4.3% due to 4.7% lower miles per truck, only partially offset with higher revenues per total mile, up 0.4%. Miles per truck declined more than expected in the third quarter. Over the past 2 years, we've realized significant gains in One-Way production and modest year-over-year decreases in the first half of this year.

As Derek mentioned, the Q3 change in trend reflects shifts in fleet profile and new driver onboarding and, to a lesser degree, some early quarter network softness. While seeding Dedicated growth had tangential impacts on One-Way production, we are in a more favorable position now and production has already improved through October, returning to nearly flat versus last year. Revenue per loaded mile increased 0.8% year-over-year. Deadhead was slightly higher, increasing 32 basis points year-over-year and 15 basis points sequentially, resulting in a 0.4% increase in revenue per total mile. Although total One-Way miles decreased 3% versus the prior year, combined One-Way and PowerLink miles rose over 4%, enabling us to serve customers efficiently with fewer assets.

Logistics results are shown on Slide 12. In the third quarter, Logistics revenue was $233 million, representing 30% of total third quarter revenues. Revenues increased 12% year-over-year and 5% sequentially. Truckload Logistics revenues increased 13% and shipments increased 12% with gross margin expansion. Our PowerLink offering led the growth, up 26%, while traditional brokerage recorded mid-single-digit revenue growth. Higher volume was the driving factor with modest rate improvement. That being said, Logistics volume in October softened and margins have been pressured as purchase transportation costs have increased. Intermodal revenues, which make up approximately 15% of the Logistics segment, increased 23%, almost entirely from higher volume. Final mile revenues decreased 1% year-over-year but increased 4% sequentially. Logistics' adjusted operating margin of 1.8% improved 140 basis points, driven by volume growth and lower operating expenses. The operating margin expansion is net of added pressure on Logistics gross margins as some higher-priced project business was replaced with contractual business. Our ability to scale in Logistics at lower cost is driven in part by our technology investments and our EDGE TMS platform.

Moving to Slide 13 and our cost savings program. Through the third quarter, we have achieved $36 million in savings towards our $45 million goal. Actions to achieve the full $45 million have already been taken, giving high assurance of achieving the remaining $9 million in the fourth quarter. 2025 marks the third consecutive year of cost saving achievement in the range of $40 million to $50 million per year. We will continue this discipline into 2026. Leveraging our technology investments will help, along with additional initiatives aimed at improving profitability in One-Way and extending our operating efficiency in Logistics. We look forward to discussing our 2026 cost savings program with you next quarter.

Let's review our cash flow and liquidity on Slide 14. Operating cash flow was $44 million for the quarter or 5.7% of total revenue. Net CapEx was $35 million, or 4.6% of revenue. Year-to-date, net CapEx is 4.2% of revenue. Free cash flow year-to-date is $26.2 million, or 1.2% of total revenues. We ended the quarter with $725 million of debt unchanged sequentially. Our net debt to adjusted EBITDA as of September 30 was 1.9x. We have a strong balance sheet, access to capital, relatively low leverage, and no near-term maturities in our debt structure which provides ample financial flexibility to invest in growth and value-enhancing opportunities. Total liquidity at quarter end was $695 million, including $51 million of cash on hand and $644 million of combined availability under our credit facilities.

Let's turn to Slide 15. When it comes to broad capital allocation decisions, we will remain balanced over the long term, strategically investing in the business, returning capital to shareholders, maintaining appropriate leverage, and remaining disciplined and opportunistic with share repurchase and M&A. In August, our Board authorized a $5 million share repurchase program, replacing the prior program. We did not repurchase any shares in the quarter.

Let's review our guidance for the year on Slide 16. We are adjusting our full year fleet guidance range from up 1% to 4% to down 2% to flat. The TTS fleet is down 0.1% year-to-date. Implementations of new fleets in Dedicated remain ongoing, but the One-Way fleet decreased during the quarter and is expected to further decline through year-end. We are tightening our full year net CapEx guidance from a range of $145 million to $185 million to a range of $155 million to $175 million, with the midpoint unchanged.

Dedicated revenue per truck per week increased 1.3% year-over-year and is up 0.4% for the first 9 months of the year. We are tightening the full year guidance range to flat to up 1.5%. One-Way Truckload revenue per total mile increased 0.4%. For the fourth quarter, we expect revenue per total mile to be down 1% to up 1% compared to the prior year period, mostly due to mix plus structural changes anticipated in One-Way aimed at profitability improvement in 2026 and greater operating leverage and readiness as capacity tightens and the macro improves. Our effective tax rate in the third quarter was higher than usual due to discrete income tax items, specifically a $4.7 million return-to-provision adjustment, which unfavorably impacted adjusted EPS by $0.08. We expect our fourth quarter effective tax rate to be between 26% to 27%. The average age of our truck and trailer fleet at the end of third quarter was 2.5 and 5.5 years, respectively.

Regarding other modeling assumptions, gains of $4.5 million was down from $5.9 million in the second quarter as expected on nearly 20% fewer tractor sales and over 40% fewer trailers. Despite the sequential pullback, unit gains were almost double compared to a year prior. We expect resale values to remain generally stable given OEM production constraints and the evolving regulatory backdrop that will be an incentive towards high-quality used assets. We are narrowing our full year guidance range for equipment gains from a range of $12 million to $18 million to a range of $14 million to $16 million.

With that, I'll turn it back to Derek.

Thank you, Chris. In summary, while we experienced significant challenges in One-Way this quarter, results across the rest of our business are steadily improving. What remains constant during these uncertain times is our competitive advantage. We are a large-scale, award-winning, reliable partner with diverse and agile solutions to support customers' transportation and Logistics needs. As this challenging operating environment continues, we are taking actions to position the business for long-term growth. Our fleet is new and modern due to the investments made in the last few years. We're progressing through our transformational technology journey, and our balance sheet is strong, enabling flexibility in our capital allocation strategy.

With that, let's open it up for questions.

[Operator Instructions] And your first question today will come from Jordan Alliger with Goldman Sachs.

So questions. Given some of your comments in the fourth -- for the fourth quarter so far on spot picking up, maybe demand a little better, productivity, some of the startup costs dropping off, is there a way you could maybe frame up how to think about hopefully improvement in TTS operating ratio? As we move from 3Q to 4Q, would that be the expectation?

Jordan, I'll take that one. This is Chris. Yes, maybe at a high level just to give you some inputs going Q3 to Q4. Q4, we would expect it to be, call it, seasonally softer, down sequentially with revenue softness in Logistics.

I think there will be some operating income upside with some of the items that you mentioned, startup expenses dropping off, some One-Way production rebounding, and our cost discipline holding. There's some offsets with some further Logistics gross margin pressure and lighter gains.

Your next question today will come from Bruce Chan with Stifel.

This is Matt Milask on for Bruce. To start, I believe you said that the pace of capacity reduction related to regulatory enforcement appears to be accelerating. One of your competitors pointed to potentially larger impact there than what ELDs had several years back. We're curious if you could comment on the magnitude of reduction you might ultimately expect here, maybe what the timing might be, and any color or early signs that you're seeing across the business or within the customer conversations that you've had around this.

Thanks, Matt. Thanks for the question. So yes, on the pace, we'll start with the one that started first, which was really the ELP side of it. We've seen ongoing increases in the pace and aggressiveness of the English language proficiency enforcement. Right now if you were to look at current trends, it would project out to be about 30,000 annually that would be placed out of service. But each month, that trend has increased in momentum. And I think as more states realize this is serious and it is a safety concern and enforcement increases, that number could certainly move north. But as of late, that focus has really been shifted or added to by the focus on the nondomiciled CDL front. There's lots of estimates out there, but a fairly conservative one appears to be 200,000 nondomiciled CDLs.

And as we see enforcement starting to ramp up on that issue, it shows through as it relates to regional tightness and regional movements in the spot market. So I don't think anybody is here today saying the spot market has fundamentally moved up into the right nationally, but it's very clear that it's moved and followed trends in markets where enforcement has been ramped up. As recently as a few hours ago, I saw there was a press conference where in Indiana, they had a focused enforcement activity that took another 100-plus drivers off the road, of which I think upper 40s were Class 8 CDL holders. That type of enforcement and momentum we expect to continue. I would argue that, in total, when you take the B-1 visa cabotage issue, the ELP issue, and the nondomiciled CDL issue, I would concur that, that is larger than what we saw with the introduction of ELDs.

The last enforcement around the corner that we believe the administration is aware of is actually relative to ELDs, and that's some of the ELD fraud that may be occurring out there on the nation's road. It's way too premature for me to try to put a number on how vast that may be. But I'm encouraged by all of the enforcement opportunities to improve safety on our nation's roadways, and I applaud the administration for taking those matters very seriously.

And your next question today will come from Jason Seidl with TD Cowen.

That's some good color that you just gave. If I could just tack on to that and then ask you questions about where you think the rates are going for bid season. But what do you think the overlap is between nondomiciled and ELP? That's something that we haven't been able to get a handle on even as we ask people. And I guess as we look for the bid season, what are your early thoughts on bid season for '26? Can it look better than this past year, the low-single digits? Or do you think not with the demand environment that we're in now?

Yes, I'll start with -- so the overlap question, I agree, I think it's probably the most nebulous of all of the numbers to try to get your arms around. But honestly, I'm not sure that it matters a whole lot, right?

If we have significant enforcement on the nondomiciled CDL issue, even if it only means the nonrenewal of such licenses as we go forward, you can very quickly get into a significant number of drivers. I think the bigger thing that gets overlooked often is what's the numerator, what's the denominator, right? And so what we're talking about here, even at Werner within our own results, is we have pointed very clearly to the duress being in the one-way over-the-road network. That duress is pronounced through the proliferation of a lot of things to include the B-1 visa cabotage opportunities, ELP, and lack of enforcement of existing laws and the nondomiciled CDL proliferation that we've seen over the last 4 to 5 years.

And so, it is a significant portion of that population that we're talking about. Now is it as high as some of the estimates I've seen? I don't know. But even if you cut those estimates by half and you look at 150,000-ish of those overlapping drivers, if you will, that's a significant change in market dynamics. And so, yes, I think this enforcement does continue to put us in a position for a bid season that shapes up to be better than a year ago. But all of that is a week-to-week, month-to-month monitoring of what's happening with the attrition, what's going on in the bankruptcy front, does lender leniency continue to tighten slightly as used truck values improve, and all of the above, not to mention just overall trucker duress out there and the need for increased rates, I think, puts pressure going into bid season for us to try to do even better than what people were achieving this year.

This year's bid season, we were, for the first time, and you've seen it in 5 consecutive quarters, seeing increases in our rate per mile. As we came out of bids, we were seeing more stability in the outputs of those bids. But we need a lot more where that came from. And I think that's something that's well aware. And the last piece on this enforcement is we tend to think about it only as law enforcement, but there is increasing awareness from insurance providers of some of the risks that these issues represent to them. And as insurance companies are starting to dig in and, I think, think differently about fundamentally underwriting some of these carriers, I think that's yet another barrier that really has not been present in the past that's starting to show its head. For the record, on all of the above issues, we like our position and our fleet position very much, and we encourage increased enforcement on all of the above.

Listen, I'm sure that's the case. And on the insurance side, do you think that's something that we could see quickly accelerate, putting more capacity out of the marketplace?

All I can speak to is actual conversations that I'm aware of that are happening as we speak between insurers and their underlying carriers and documentation and vetting that is certainly ramping to a level that was not previously in place. All of that, I think, is good for the industry and good for public safety.

And your next question today will come from Tom Wadewitz with UBS.

Wanted to ask you on the, I guess, the popular topic on the call here. So you mentioned, Derek, that the numerator and denominator are important in figuring out this potential regulatory impact on supply in the market. What do you think the denominator is? Do you think it's like third-party for-hire truckload that you would say, hey, it's like 1 million drivers. Is it 2 million? How do you allocate the exit in terms of estimating a percent impact, whatever you think that numerator is?

Yes. Tom, thank you for the question. Yes, I think when you think about Class 8 over-the-road one-way, not private fleet driver base where this is having the most profound impact, and frankly, covering most of the nation's highways with this type of category of driver and/or skill set, I think it's less than $1 million, but approximately that number. So let's just say $1 million. And then if you go back to the earlier conversation where I think conservatively between the triple impact of B-1 cabotage -- so I'm not anti-B-1. I've said that many times, we don't use them in our fleet, but if you're using them legally, so be it -- but cabotage is prohibited under the program, ELP, and nondomiciled CDL, you're going to quickly get to a number that looks something like 150,000 to 200,000, and that's if you're being very, very conservative in my view.

And how much price do you think you need to get back on a more favorable margin trajectory? Is that -- I mean, it seems like just the cost pressures are relentless on insurance.

Well, I'll start on the insurance side and maybe Chris will jump in, and we can give you some more color. But I would tell you that I believe, obviously, as recently as this first quarter this year, we had one that came out of nowhere based on some unique situations down in Louisiana. But we have started to find a normalized run rate, if you will, of insurance that I think is somewhere in that, call it, $35 million to $38 million range. It may ebb and flow slightly from there. What I'm proud of is that we continue to post near-record lows in accidents per million miles, DOT preventables, work comp injuries, et cetera. But it's the same story you guys have heard way too many times, which is it's the outsized one-off nuclear verdicts and/or settlements that throw a lot of noise into the number. We believe we're properly accrued and that we've really done a very diligent job relative to reserves as we look forward. And we're attacking the most important thing, which is frequency and bringing it down month-over-month, quarter-over-quarter, anywhere and everywhere we can. So on the insurance front, that would be my answer.

On the rates, obviously, you asked the question what do we need. We need a lot. I mean, so does the entire industry. Not a very technical answer, but we're going to get everything we can. I think shippers are starting to become aware more and more of how their freight may or may not be moving the way they thought it was and by whom it may be getting moved compared to what they thought it was. And we need to make sure that we get this industry back to reinvestable levels, at a high-quality level, with vetted, qualified, competent drivers behind the wheel. And that is certainly the work that we'll be doing as we go forward with our shippers.

And your next question today will come from Ravi Shanker with Morgan Stanley.

This is Nancy Hipp on for Ravi. It would be helpful to hear a couple more details on peak season and your thoughts towards the end of the year, especially with your nondiscretionary-focused consumer base with this recent extended government shutdown.

Nancy, thank you. So peak season, if I start at 40,000 feet, I think the best way to think about it from our view is that it's going to look similar to a year ago. Now there's some puts and takes in that, that make it maybe a little cloudier. A year ago, inside of some of those peak numbers were some projects related to hurricanes and storms and natural disasters that at this point don't appear to be the case for this Q4. Overall, discount retail holding up pretty well, and what we're seeing in terms of opportunity sets look comparable. We've made some conscious decisions as we talk about One-Way being under duress to reallocate assets relative to where we're participating in peak, where we think it fits our network better. It may or may not demand the same premium, but if it doesn't have the same cost associated to it, that's still a win.

So we need that to play out and see what those volumes come in at. But in general, we're working with customers that are doing better than most. They are in the end of retail or on the retail spectrum where people are migrating to, not migrating away from, and their projections and same-store sales are holding up pretty well. So what we know is that's on the books today looks pretty good and similar to a year ago. What we don't know is whether there's upside from there given some of the enforcement issues and other freight and mini bids that it could cause. We're not in a position to talk with a lot of optimism about that today because I think this enforcement trend needs to continue to gain traction before we would see that.

And your next question today will come from Scott Group with Wolfe Research.

So on the -- you've talked about regional tightness in a bunch of areas. We're hearing that from a lot of folks. I'm just curious, as you're seeing some areas get tighter, are other areas getting looser? Meaning is there some chance that these guys are leaving the states that it's being enforced and they're going to the states where it's not being enforced. And so the net impact is there's regions that get tight, but the net impact isn't as significant as maybe we'd think.

Yes, Scott, I understand the question. Thank you for that. But no, I don't believe that's the case. We absolutely believe there is some avoidance going on. So I want to be clear about that, right? Some out-of-route miles being ran to avoid states of enforcement or areas of enforcement. We believe there's some of that happening. But where we're seeing the tightness happen, often we have the ability to follow up and get more specific on what's happening in the market, whether it be through our used truck sales network, our local boots on the ground, a terminal in the area. And what we're hearing back is, no, 20 drivers didn't report to work today, and they're not coming back because they're concerned about enforcement, or the fleet that's involved with whoever those drivers may be, let go of 30 drivers today or close their doors.

We've seen some truck cancellations from fleets that were purchasing trucks from us that unbeknownst to us had drivers of those types maybe in their fleet and have had to cancel because they now are sitting with open trucks. So no, I don't believe -- you wouldn't -- because they're predominantly in the over-the-road application, Scott, and predominantly doing, therefore, national freight kind of one-way freight, you can't really avoid your way around the problem, and especially now as more and more states are starting to step up their own enforcement. We may think about 48 states, but you really have a select number of major highways in America, and that's where that freight is traveling. And as long as you've got a state or two somewhere along that route, the enforcement starts to tighten pretty quickly.

And then just I wasn't clear the answer about how to think about Q4. Do you think we'll see some improvement in the truckload operating ratio from Q3 to Q4? Just any -- wasn't clear. I know someone else already asked, but I don't know that I followed the answer.

Scott, this is Chris. Yes, so maybe just repeating what we did earlier. Overall, some of the softness is going to be more so from Logistics within TTS, at least on a sequential basis, revenue more or less stable to up, but you unpack that and there's more opportunity with the Dedicated fleet, revenue per truck growth peak contributing, but the One-Way fleet being down a bit. And then from an expense perspective, there's upside in TTS with those Dedicated startup expenses that are dropping off very quickly. We alluded to some of that. Early here in November it should be completely gone. There will -- we are expecting some lighter gains. Resale values, I think, will continue to be sustained. But obviously, it depends on the quantity and the number of units that we're selling. So that would really be the puts and takes that I would give to you from a TTS perspective.

And your next question today will come from Eric Morgan with Barclays.

I wanted to ask on utilization. I think you mentioned some specific shifts or factors that drove the step lower in the quarter that was unrelated to the softness that you saw. So maybe you could just elaborate on that. And then I think you said it's improving in October. So should we just expect that to step back up in 4Q? And is that market-driven or something that you're taking action on?

Yes. I would tell you that it wouldn't be the right readthrough relative to the productivity in the Q3 to associate it to some sort of significant volume gap or volume issue, per se. These were really issues that stemmed from a variety of factors, one being that as we were seeding these Dedicated trucks and going through these new vertical startups, we had mix issues in the fleet in One-Way as a result. I would remind everyone that One-Way is really, in many cases, the source of Dedicated drivers. That's where those drivers come from.

Our team mix was lower in Q3 than it will be as we look into Q4 as a result of teams that are breaking up to go become a Dedicated driver. That's certainly part of it. There's some friction involved in the production numbers when you're moving trucks and moving drivers out of one area into another as part of some more significant startups. So that was certainly part of it. And then we had some mix issues in the quarter that were unique to Q3 from a year-over-year perspective relative to projects a year ago that were different in their makeup and mix in Q3 and much smaller in their representation. So all of that went into the soup. When we look at Q4, and we look at October specifically, that's why we felt it important to call it out in the prepared remarks. We've made significant progress in stabilizing that production issue and really setting ourselves up for a strong peak as it relates to production and the ability to serve our customers.

And maybe just to circle back on your view on the spot market. You said rates have been improving in September and October. And then I think in the prepared remarks, you called out the upside potential from these regulatory changes we've been talking about. I think the numbers you threw out there could be pretty meaningful. So your formal outlook, I think, is just for normal seasonality, I believe. And then the One-Way revenue per mile guidance is flat at the midpoint despite the contract renewal. So I guess, any way to quantify what that upside looks like into year-end and, I don't know, early '26?

Eric, this is Chris. Yes, speaking of One-Way Trucking rate per mile, so you're right, we were flat at the midpoint. We have had 5 consecutive quarters of increases. And as you think about spot, we did -- you summarized it well. It was weaker earlier in the quarter. It has improved in September and now into October. And you're right, we did call for normal or expect normal seasonality, but potentially with some upside, given some of this enforcement that we've been talking about.

In terms of the projection and the guidance on the One-Way rate per mile, I mean, there's a couple of things, obviously, that would influence that. Our contractual rates are pretty much set. Bid season is over. Our results were, as we've talked in the past, mixed with low to mid-single-digit increases. So those rates are established. So the peak season will have an influence clearly on our Q4. Last year, we had a decent move from Q3 to Q4, much of that related to peak. And so if we're able to attain a similar peak season in terms of volume and rate this year, then that trajectory might be similar. And then, of course, you have spot and mix as well. And with a smaller fleet, hopefully, we can be a little bit more selective with some of the freight options that are out there.

Yes. The only thing I would add is, as Chris indicated, our spot exposure intentionally right now is a little greater than what has been historically. That number is still moving, but it's still below contract in many cases. So we need it to continue to move. It does generally move in Q4. And if enforcement ramps up, it moves even faster. So a little bit of a hedge perhaps by going to the negative 1 to positive 1, but we're trying to provide clear data that we know as we sit here today and leave ourselves an opportunity to improve upon it. And then lastly, I mentioned it earlier in the comments, so I'll just reiterate it again. As it relates to the peak season, the volumes and premiums, we think the outcomes will be similar, but we've made decisions to attack peak season this year where we have better density, where we have better ability to serve and less costs to go along with it.

And so, therefore, you're not necessarily extracting the same level of premium, but your gross margin, if you will, should look similar and with an opportunity for upside. So that's exactly how we're trying to think about it. But it does mute a little bit of premiums if you just did, for instance, an all-West Coast strategy.

And your next question today will come from Reed Seay with Stephens Inc.

I'm going to circle back to the capacity side. Not to harp on it too much, but I think one of the things that we've been looking into and other people have been concerned about is that you've had a lot of people come off the roads that could get on the roads with the news of the new enforcement that is expected to drive improvement in rates. So something like this would obviously impact the actual impact of rates. Is this something you're keeping an eye on? And how do you think about that as a potential governor to this upcycle?

Yes, Reed, I think it's a great question, and yes, it is something that we're thinking about. We would have some level of visibility, obviously, just in our brokerage arm and in our PowerLink solution arm as well. And I've talked with them recently about are you seeing changes or differences in new applicants and new people that are wanting to do business with us. And around the edges, I think their answer would be yes. That doesn't really surprise me.

I mean, I do believe that you might see some folks come back into the market, but I don't think -- I think it would pale by comparison to what appears to be a much more significant issue than really anybody had full appreciation for relative to some of the CDL issuances and the percentages we talked about earlier. So a couple of ways to skin that cat. I mean, one, earlier I talked about just take half the number of some of these estimates, and that's where you end up at the 150,000 level. Another way would be take the full estimate and assume that you're going to have a whole bunch of people come back in. I guess my point is in any way you think about it, it appears if enforcement appetite remains, and I think we would all agree the backdrop on that seems to be yes, there is capacity that will be exiting this market, and it will be more meaningful than what we've seen up till now.

And then if I could just ask on the technology side real quick. You focused on it a bit there in the prepared remarks, but can we get a little more color on exactly where that's being applied within the TTS segment and within the Logistics segment? It sounds like you've done a lot of work with that technology.

Yes. So Logistics is nearly fully implemented. I mean it ostensibly is fully implemented. And now it's just iterations of improvements as we go forward, each iteration bringing forth additional productivity gains.

But it's being applied across our Logistics group to automate any and everything that we can and take friction out of the process. You can see it flow through in our OpEx expense as a percent of revenue and the dramatic improvements that we're making on that side. And we believe there's more to come as we can continue over time to take another step up in growth once we get through this short-term buy-side pressure that's out there, take that step up in growth and continue to add volumes. They are comfortable in their belief that they can -- we can take on more volume without adding a corresponding OpEx to go with it.

On the truckload or TTS side, we're at a different stage. We're at a stage where more and more every week, we have more and more of our volume in the new system. But until you can unplug and disconnect and convert completely, often it represents a headwind. It's a net headwind in the short term. To offset those headwinds, we're deploying lots of AI across multiple places, whether it be in recruiting, billing, collections, all the way across to be able to automate more and more processes and do more with less. It allows our higher-level folks that are in those areas to still use all of the knowledge they've developed over all of these years, but to have a much broader impact and sphere of influence over the process and automating many of the manual tasks.

Reed, I would just add a little bit to that. Obviously, we're committed to the technology investments and furthering the journey, getting across the finish line, but also committed to seeing more of those synergies and benefits, particularly as we go into the next year, as it relates to margin expansion and part of our cost savings program. Obviously, we're not guiding on a cost savings program for next year. We'll do that at the next quarter, but we will be looking to more of that program to come from tech enablement type of savings, just given where we are being in these later innings. Still some more to go. But as we move forward into next year and throughout the year to be seeing more of that operational gain from the investment to this point.

And your next question today will come from Brian Ossenbeck with JP Morgan.

Derek, maybe just an industry-wide question for you. With the insurance costs, how they are and the claims trending in the direction they are, unfortunately, what do you think is needed to really get some progress on that, not just for Werner, but for the entire industry? Are we seeing any improvements on reform, anything you're excited about or states that are moving forward? Because ultimately, I'm just not sure if the shipper is going to pay for the higher insurance claim if they think that's more of a trucking industry problem and not theirs.

Yes, I think it's a multipronged approach, right? We have to continue as an industry. But that industry, the definition of the industry, I think, needs to include shippers, insurers, and everybody all in to attack tort reform. That's a state-by-state battlefield. It's very difficult. It usually takes in any one state multiple years from the time a bill is first proposed to before you finally get it across the finish line. We've seen lots of recent successes in multiple states around the country doing so. And I think that battle needs to continue to take place.

We need to continue to engage where appropriate in states that have elected judges and have shown significant judicial bias against companies or pro-plaintiff bias. What we're asking for is a level playing field. We, the industry, would like to just believe that all facts of a case should be relevant and be able to be considered. The fact that we still have nearly half the Continental United States with gag rules relative to whether a claimant was wearing a seatbelt is just simply unacceptable. I mean if they're making decisions to not wear a seatbelt and then suffer significant injuries as a result, I think every juror in America would like to know that fact, because otherwise, they're making ill-informed decisions. So we've got to engage at the judicial level.

And then finally, I think we have an environment right now where we need to be all full-court press on federal legislation that moves accidents and interstate commerce from the state court system and into a federal jurisdiction and federal courts so that at least we've got some standard set of playing rules, and we can all -- everybody can understand the level of professionalism that comes -- that takes place there.

Does that guarantee positive outcomes every time? No. Does it mean anybody is trying to skirt their responsibility from an accident that's their fault? Absolutely not. But we cannot continue to live in a world where accidents can grow overnight due to bad facts or bad rulings from what should be a defense verdict into a multimillion-dollar verdict the other way. So it's going to be long and hard fought. You can probably tell by my voice, there's some passion for it, and we're going to stay engaged along with many other of our brethren in this industry.

I understand it's a pretty difficult road ahead, but it sounds like some progress. One other quick follow-up on another topic you're passionate about, Derek. Just the B-1 visa, the cabotage, I know there's some enforcement mechanisms for more ELP testing than nondomiciled issue. But is there any way to address and maybe get some tighter enforcement around the illegal uses of the B-1 as it relates to cabotage?

Yes, I believe there is. I mean, obviously, like many things, there's a difficult or a resource obstacle or issue involved with how much current enforcement people are able to do. if they're now trying to enforce ELP and they're enforcing nondomicile and then asking them to additionally enforce B-1 cabotage. There is efforts underway. The government is engaging on this B-1 cabotage issue as we speak. And I know that there's some creative tech that they're engaging with, I'll just leave it at that, that excites me because I think it will present an opportunity for them to do it more systemically than just with roadside inspections and stops. But the reality that we all know is that there are drivers crossing the southern border or northern border every day. And we know that in talking to CBP officials and others that it is not uncommon and in fact, more the norm that they don't cross back for 21 to 27 days. If that's the case, nobody will convince me or I think any reasonable person that the only thing they did was to drive to destination, pick up a load, and then exit the country. And so all of the above for the benefit of the nation's highways and public safety on those highways needs to be enforced. And we plan on continuing to be a loud voice to that effect.

And your final question today will come from Chris Wetherbee with Wells Fargo.

Derek, in your prepared comments, you mentioned One-Way trucking demand through September improving and then so far in October. So I guess I just wanted to come all the way back to that. It sounds like what we've heard from some other folks was maybe a little bit different than that over the course of the last few days. So I want to maybe see if you could expand a little bit on what you're seeing, particularly in the month of October.

Chris, I would start by just reminding you that the makeup of our customer base is heavily retail. Obviously when you start getting into September, October, our exposure to the effect of what is happening in preparation for peak and during peak is probably a little different than some of our competitors. So not discounting any comments they may have had, but yes, we have seen some uptick in September and that strength has continued through October thus far. I would tell you that that's seasonally normal for us. So it's not like we're trying to call that out as some out of the norm anomaly of some sort. That's what we would expect, and that is what we're seeing, and we felt it worth mentioning. That's also why the confidence in both secured peak opportunities as well as those in discussion give us the confidence to speak to similar volumes, similar impact as a year ago, which was a more normalized peak following a couple of years in a row of very subseasonal peak.

Yes. I think in this environment seasonality is not necessarily a bad thing. And then maybe just quickly, the Dedicated pipeline, you guys mentioned that. I'm just curious, as you maybe just think not just 4Q but how you think about that into the first half of next year, it sounds like it's building.

Yes. The Dedicated pipeline is holding up. This time of the year, discussions taper off in Dedicated a bit because everybody is focused, both us and them, on obviously getting through peak season and delivering on the expectations of their customer. But our pipeline is robust. We've got a lot of stuff that is already precommitted into Q1 next year. We do very few implementations in Q4. That's always the case. But Q1 is shaping up pretty nicely. And the overall store prospective pipeline that folks that we're in the, call it, 5th, 6th, 7th inning with also looks pretty good. So our expectation next year is that we're going to continue to lean into the Dedicated pipeline. We think it has more of a value proposition in a tightening One-Way market.

We think people in this enforcement level market that we're in today, where people are paying more attention to that, I think Dedicated also even looks a little more attractive. But we will be very cautious. And our Dedicated implementations that we choose to take on will be true Dedicated. So difficult-to-serve, defensible-type fleets, not just volume or One-Way fleet masquerading as Dedicated. We want the sticky stuff, the stuff that, yes, can be painful. I'll remind everybody again about the implementation cost pain we've just been through, but it's worth the pain because once you're on the other side, the ability to retain that fleet well into the future is something that we've proven very good at it, and we expect that to be the case in those as well.

This concludes our question-and-answer session. I would like to turn the conference back over to Derek Leathers for any closing remarks.

Thank you. I just want to thank everybody for being with us today. We've talked a lot about the macro environment remaining uncertain. But as we enter in this year's peak season, the health of the consumer and our retail alignment sets us up well to put the Werner capabilities on full display. Enforcement on a multitude of fronts is leading to ongoing capacity attrition, and the tariff-related noise seems to be settling in. The ongoing structural improvements to our costs, combined with the recent increases in productivity, put us on improved footing to leverage the upside as the market comes further into balance. This prolonged freight recession has, like any challenge, strengthened us even further for the long haul. Again, I'd like to thank you for spending your time with us today and your continued interest in Werner.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Great. So to round out the transports track on day 1, we have Werner, and we're very happy to welcome back Laguna, Chris Wikoff, EVP and CFO and Treasurer; Nate Meisgeier, President; and Chris Neil, SVP of Pricing and Strategic Planning. Gentlemen, thanks so much for being here.

So yes, I think the debate continues on the macro and the cycle as to whether we are going into an old mighty recession or we are going into a huge rebound. I'm sure you know the answer to that question. So if you please enlighten us, that would be amazing.

Absolutely. Yes, we'll get right to the answer. No, maybe just to back up and maybe we'll just all take a bite at just overall describing the macro, at least from a demand standpoint, -- on the One-Way side, that's been generally steady and generally seasonal. It's been more so on Dedicated and the Logistics business, where we've seen some positive momentum, particularly in the second quarter, and that continues.

In Dedicated, we saw fleet growth that we signed earlier in the year in the first quarter, really our biggest streak of wins, new logos across a number of different verticals. It takes time to implement that, but we've been doing that over the last quarter and continue through the third quarter. So we like the trend there really being reliability back in focus for shippers. And that's positive. When that's front and center with large enterprise shippers, that's when we're going to excel the most for our dedicated product.

And then Logistics, we were back to mid-single-digit growth on a year-over-year basis in the second quarter. A lot of different underpinnings for that. That was in our truckload brokerage, our PowerLink offering where we're brokering the driver and the tractor and we own the trailer and then also positive momentum in intermodal. So that's been positive, more so volume driven also with a little bit of rate in the last quarter. That continues. And so overall, a good trajectory in Dedicated and Logistics. Nate.

Yes. So I would say that on the tariff front, which is something that's been a challenge all year long with starts, stops, tariff on Monday, it's paused on Tuesday and it's back on Friday. Our customers have settled in nicely to this is the new normal for now. And so whatever pent-up wait-and-see approach has really broken through. And so we think that there's -- we're settled into this is our normal now for our customers. We talk a lot about our discount customers and retail and food and beverage, and that's -- the good news about that is it's a constant replenishment of nondiscretionary items. And so both on the -- who is the end customer. So the discount customer and people who are trading down into discount retail, that's healthy. Food and beverage, that's healthy. And so all of the nondiscretionary. And so we feel like we've got a good inside track on that in terms of our customer base.

I think the only other thing I'd add would just be the uncertainty that's out there, I think, has led shippers to look for service providers that have more capability, scale and high service. And so we've just seen more constructive conversations over the last couple of quarters that led partly to some of the dedicated wins that we talked about and just a general positive momentum, although stable positive at the same time.

You guys are using all the right words. So if I were to just kind of do the sell side, kind of give me a thumbs up, thumbs down, kind of do you feel better now than you did during your 2Q call?

During the Q2 call? Yes. I would say we generally feel the same. Q2 was certainly an improvement over Q1. And relative to where we were a year ago, overall, I think the fundamental trends are positive. And so we're in a better place than we were a year ago. All of the momentum that we're referring to, it's gradual, and it was more so in the second quarter, but it's encouraging to see that continue.

Got it. Nate, just to follow up on what you said with your customers telling you that we now accept this is a new normal. Is that a good thing or a bad thing? Because are they saying that the chopping and changing is a new normal, and there's nothing we can do about it. And so we just need to like look in front of our nose? Or are they saying now that we know there is a tariff number, if it's a 10% or 15%, like it doesn't matter what the number is, we can go plan ahead, build inventory, blah, blah, blah.

Yes. I think the answer is yes. It's both of those things. It's the -- we now know what this looks like. By the way, back when Liberation Day happened, it was what the hell is going to look like. Now we've been dealing with it for long enough, we can build a plan. Uncertainty is the certainty of the day, maybe is the better way to summarize that. And some customers do get a little more certainty on what's their percentage rate and can build around that.

Got it. So we've heard a couple of times today that the stats thrown out that one house equals anywhere from 7 to 7.5 trucks -- and so there is a lot of focus on unlocking the housing market to try to break a lot of log jams, including the transportation side. Would you kind of endorse that view and kind of what do you think happens next week? I mean I'm not asking you to pick 25, 50 bps, but do you think that's going to be enough to unlock that? Or do you think we need more?

I don't know that I would say that, that by itself is a catalyst for significant change. I think it all contributes and it's helpful. Having a rate cut is certainly positive from a consumer standpoint, which the consumer has held in there, been resilient. but also more recently selective. So that's helpful. And to your point, in terms of that opening up a log jam to building projects, new construction and the supply chain that follows that, that can be very positive. Is it a catalyst to suddenly get into an up cycle and a meaningfully improved macro, we'll see, but it would be helpful.

Got it. So in this continued uncertain world, when you think of One-Way versus Dedicated versus Logistics Kind of as you highlighted at the top, where do you pour your resources into? Do you pour it into One-Way saying this is the torque of the cycle and kind of is going to be what explodes in the up cycle comes? Do you say Dedicated Is safe shore bet, and so that's what we're going to focus on? Kind of how do you prioritize those three?

Well, as Werner's evolved, we've become more solution-oriented to large enterprise shippers. So that's the -- really the common thread across our entire portfolio is large-scale shippers in a number of different verticals. So there's going to be homes within that complex supply chain for different modes, Dedicated, one-Way and Logistics. So having all of those solutions is helpful as we approach the broad supply chain problems of our customers. But to be more specific, where we see more pronounced growth is in Dedicated and also in logistics.

With Logistics getting back to mid-single-digit year-over-year growth in the second quarter and continuing, that is our fastest-growing segment. The Dedicated fleet growth also being positive. There are pockets within One-Way being less commoditized and more highly engineered. It's also our One-Way business that supports nearshoring in our Mexico franchise. And it's also the platform where new customers, new logos to Werner can get to know our solution, our brand, our service offering before entering in maybe into a long-term contract in Dedicated. So there's other ways that One-Way is beneficial to us. But I think as we look to the future, there's more pronounced growth that we would see in Dedicated Logistics.

Got it. I'll come back to Dedicated Logistics in a second. But maybe first, the peak season question, kind of what are you seeing out there for peak season? I think you guys did comment on project business on your 2Q call. Has there been any kind of further developments or acceleration there?

Yes. First, in terms of peak, just to zoom out on what peak means for Werner, I mean, typically, it's a couple of handfuls of customers that really make up our peak business. So that's what we're talking about when we're talking about peak. So it's early on. We've had some conversations with some of those customers. I would say it's generally positive. And still more time will tell. These are projections, right? These are outlooks with those customers. But I would say it appears with those early conversations to be similar or potentially up in volume and/or rate. So still more to go. It's early and projections can be very different from kind of the actual and the reality. But it's generally positive. We're more concentrated in retail. I think some of the recent performance and earnings and commentary around retail has shown that some of the back-to-school traffic has been positive. That can be a positive indicator of peak. So maybe more to the upside than the downside, but still would need a bit more time to tell.

So maybe going to switch gears and talk about pricing. So One-Way revenue per total mile increased 2.7% year-over-year in 2Q, and you guided flat to up 3% for 3Q. It sounds like there's some potential for getting more. So obviously, 2025 bid season is over, what can you potentially look forward to going into start of '26? And that kicks off what October for you? Or when does bid season for '26 start?

Well, '26 bid season has really started. We're on the very early stages of that. We've received a handful of opportunities that would become effective January mainly, but only a very handful. So we're at the very, very beginning of '26 bid season. But kind of setting the stage here in terms of One-Way pricing, yes, it was up 2.7% in the second quarter. That was our fourth consecutive quarter where it had been up on a year-over-year basis, but still pretty minimal when you consider what's really needed and more sustainable long term.

So it's -- it continues to be just a challenging, difficult backdrop out there in One-Way. But I think the setup is such that we'll continue to work with our customers that have leaned into the service and scale that we can offer in our One-Way segment. And so all in all, it's going to continue to be a challenging bid environment in '26, just like it was in '25. I mean it feels like things are a little better now than they were a year ago, but the setup is similar.

At the same time, you look at our One-Way sector or our One-Way division, you look at the other One-Way sectors out there, and they're under duress. I mean it's a really tough environment. And so clearly, what's needed is more than low single-digit increases, which is kind of what we've been enduring here over the last 4 quarters. So when you think about what's important and what are the components of the One-Way rate, you're thinking about contract rates, you're thinking about spot rates and then mix. And to your point, the bid season here in '25 is over. We got relatively low to single-digit increases there. It was mix, but that was kind of the average. So those rates are kind of baked, and that's what we'll endure for the rest of the quarter or the rest of the year.

Spot rates have not been -- they've kind of been at low levels. In fact, they've kind of fallen off a bit here in August. And you're really looking now at spot rates that are similar on a year-over-year basis to what they were a year ago. So we were hoping that, that would be something that we would see some inflection with. And typically, you do in September. So we'll wait and see. It's still early in September. But so far, it's been a kind of a muted spot rate environment. So that's not been something that's been terribly helpful in the quarter.

And then mix because volume has been stable, mix has been similar to what it was in the second quarter heading into the third quarter.

Got it. That's helpful. What are you seeing out there on capacity? Kind of are you seeing incremental changes in capacity coming out of the market? And kind of any further commentary on the English language proficiency test and the H-1B visas with kind of what you've seen out there in the marketplace?

Yes. So capacity, we keep seeing more attrition. There are some larger carriers that have gone out in the last few months. So we're seeing a little more impactful, nothing, obviously, at the thousands of trucks per carrier, but hundreds certainly. the English language proficiency, the ELP, the enforcement numbers on that are getting to be significantly higher. So first month was hundreds of out-of-service drivers. Second month was 1,000-ish, and the numbers just came out for the last 30 days, and it's more like 2,000. So still not -- I mean we're talking about $3,500, $3,700 all in. That's not going to move the needle much. But if you look at the trend line, obviously, that's doubling from month to month. We're hearing about more states that are now taking the enforcement seriously. It's a state-by-state battle. And so as you see more states come online with enforcement, we think that number -- continues to inflect upward. And -- but if you just take the last 30 days and annualize that, that's 25,000-ish drivers that go out of service and stay out of service in a year, that's a meaningful number. Obviously, that's a huge carrier that goes out and disappears in a year. So we think that, that will have -- we see that having more and more impact as enforcement comes more and more online.

And then the B1 enforcement, that's something that we, as an industry, have been talking about for a long time in terms of getting that kind of shadow capacity out of the market where cabotage is scavenging rates that no one else can -- no one is doing it the right way and compete at those rates. So we like the sound of all of that. And really, when it comes down to it, we're talking about safety first. The English language proficiency is about safety. It's about making sure that drivers can communicate with roadside enforcement. If there's an accident that the driver can communicate with law enforcement on, is there someone else in that vehicle that you need to go rescue, what's in the trailer? And is that going to cause a safety problem for others?

And then just the ability to read and understand the more dynamic roadside signs. So it's not just a stop sign and a yield sign and a speed limit sign. It's the one that says vehicles over this weight need to take an exit right now. And if you don't, we're going to have a big problem. That's a safety problem for everybody on the road.

So we're proud of the fact that our ELP compliance has stayed put. We've never really wavered on it at all. We have not used B1 drivers just because we could. We've got a large cross-border presence, and we could figure out a way to do it, but we just don't think it's worth the risk.

Got it. So right now, is enforcement mostly in the smile states? And do you have -- do you guys -- what's your share like in those regions where you might potentially benefit if small carriers are put out of business?

Yes, it's in the states that you would expect it to be with probably red states is the right way to say it. But there -- the federal government obviously is turning the screws on all states, especially the ones that are thumbing their nose at the enforcement. We're taking funding away from those states, which start hitting somebody in their pocket book and maybe they'll pay attention a little bit more. So yes, the states that are enforcing it are the ones you would expect. The ones that are getting the most pressure are also the ones that you would expect to be getting the pressure from the Feds.

Got it. Speaking of pressure, obviously, while this does not impact you guys and one factor that does impact you guys is insurance costs. And you guys obviously -- it happens on both sides. So on the one hand, you had the good news with the favorable settlement of the verdict, kind of that removes a big overhang that's been around for years. But on the other hand, insurance is something that kind of inflates for everybody, right? So what is the line of sight to resolving this over time? Is this just considered to be normal course? And how sympathetic are your customers when you say, hey, my insurance is up 20%, I need to pass that through.

Yes, there's a lot there. So on the Texas case, Ravi, I got asked about that every day for 7.5 years. So we should probably just take up the rest of our time to talk about that big victory in.

This may be the last time.

Only from you. So yes, the answer is on the risk mitigation side, it starts with let's not have the accident on the first place. So we're investing heavily in the safety technology on the truck. We're investing heavily in the quality of the driver that comes on board. We're investing heavily in the training for that driver, and it's having an impact. So our trend line on our accidents is down into the right. Our trend line on our accident per million mile is down to the right. Our trend line on our severity is down into the right. So all those trend lines are trending favorably. And really, it goes along with our mantra of nothing we do is worth getting hurt or hurting anyone else. And so that matters to us as our culture and our company approach. So that's one.

Two is, you're right, the customer question is one that for a long time, it's been, well, that's your problem. And as customers start feeling a little bit more of that pain directly themselves, whether it's on slip and fall accidents, premises liability or their own auto liability claims, there's a little bit more sympathy there. A topic that's come up a lot today in our one-on-ones is private fleets. So those private fleets that have felt some of that pain that are also our customers at the same time, they have empathized with us a little bit more and seen what we've been preaching about. Derek, our boss likes to say, it's one thing to tell someone that it's raining. It's a very different thing for them to be standing out in the rain with you. And so as they are standing out in the rain with us, they sympathize a little bit more.

And really, the last point I would make there is we're taking different approaches in terms of -- we've always talked about settling claims at a fair price, which we are now emphasizing doing it more quickly. And the problem becomes if you have an accident on Monday, and you have a lawsuit in your hand on Friday over the same week, which that's a real thing that happens on a regular basis. Sometimes you don't have that opportunity. But we're working hard to, again, handle those claims fairly, resolve them quickly, resolve them at a fair price. And when we need to, like the Texas case, see, I'm going to bring it up again. We are going to take a case to verdict if when we need to, when it's time to dig in and fight.

I never speak of it ever again.

I'm happy to talk about it every day.

But that's a good segue to something you said which is private fleets because that has been a topic of discussion in recent months. There is a thesis floating out there that one of the reasons why there appears to be a persistent capacity problem in the TL world is the growth of private fleets that's left a lot of stranded capacity on the for-hire side. Do you endorse this view? Kind of what do you see out there? What do you think of that?

Yes. I think I'd concur that there was some growth in private fleets over the last 4 or 5 years really. I mean, during the pandemic era, there was really a necessity for some of those companies to stand up their own fleets or increase the size of an existing fleet. And so I think that's occurred, and that's potentially part of the problem in terms of the One-Way Truckload market, just taking some of that volume off of that space and moving it over to the private space.

But now I think it's -- those folks are in an interesting place because you have a truck now that's 4 or 5 years old, you're going to have to reinvest in that equipment and make some big CapEx if you're going to continue to operate with that. You have the insurance issues that are different arguably now than then, certainly not better now than they were several years ago. So that's an additional risk factor that's out there that maybe wasn't quite as severe. And then you've got the driver issue where you think over the last handful of years, it's been -- I mean, it's never easy to hire good quality professional drivers, but it's been easier than during the pandemic times and even other times where the market was more accelerating and drivers had more options. So it's been a favorable environment to grow a private fleet.

And I think what we're hearing now is that the goal would be to hold them kind of where they are, hold them flat, less of a desire to grow those. And even in our own Dedicated business, we've seen a little bit more in terms of private fleet conversions coming to us talking about how we can take on that fleet for them and take on that risk and...

And just on that point, does that then set up this really good pipeline of private fleet conversion? And when do you expect to see that usually? Does that conversion usually happen at the bottom of the cycle or when the up cycle shows up and the customer is like, well, I can't manage the things of my hands?

I don't know if there's a time when it -- necessarily when you can point to when it happens more frequently. But I think because of the factors I mentioned earlier that it is a unique time now with some of that equipment coming due, as I mentioned, and maybe as you think about an up cycle coming up and driver availability getting more challenging, that now would be a time for them to consider an alternative.

Got it. So moving on to logistics. Kind of just -- how has your logistics segment kind of been in the third quarter? Obviously, things appear to have gone relatively sideways in a good way. And so again, are there opportunities here? Or is it just something that we need to wait for the cycle to show up before that really inflects?

Yes. In the second quarter, logistics was certainly a bright spot. We do see that continuing. Again, back to that mid-single-digit growth year-over-year, a number of different drivers to that growth. Some of it new awards, some of it more volume with large customers, some cross-selling, seeing more cross-selling between our Truckload Transportation Services and Logistics, not cannibalizing, but more modes, more solutions to solve broader supply chain needs for our customers. Technology also contributing to that as well as some project freight and pop-up freight, which continued through the second quarter into the third quarter is that project freight is now transitioning off, but right behind it are some new awards that we're also ramping up within brokerage. So now that can come with a different margin profile as some of that mix change. But overall, that top line growth on a year-over-year basis, we're seeing that continue. So that's been positive.

And then along with that, not only in the second quarter, did we see that top line growth, but we also had OpEx down 9%. Salary, wages and benefits down double digits.

So really pointing to technology, we started this technology journey in logistics as really our first proof case. We've had a couple of years of that, and now we're really seeing that benefit where we're able to support more volume, but do it in a way that's better, faster, cheaper and keep that cost profile low as we scale from here. So we're excited about what we're seeing overall in the logistics segment.

Got it. What was the strategy? 5 T&S? The technology was one of the Ts.

5 Ts.

Yes, 5 Ts. So just on that point, right, I think in recent months, it's emerged that truck brokerage is like the hottest thing in AI. And everybody is like, this is where you'll see these opportunities. Obviously, one of the large players in the space kind of has a press release every week about all these AI tools they're putting out. Do you feel like that is something that works for them that may not work for you guys? Or because you guys have always focused on technology, kind of have you been putting those tools in place as well? And do you think it can work for you?

Well, broadly, it's just part of our strategy of leaning into technology. Certainly, there are components of our Edge TMS and our technology platform that are key. But surrounding that, we're also looking at other pioneering technologies in the space and looking for ways that we can plug that into kind of the digital ecosystem and to test to see if they fail fast or if there's opportunities. So it's just a broad focus on technology.

There's a number of different ways that we're using that, some that are more mature than others. But in the case of brokerage, as you mentioned, and specifically in logistics as one area that's continuing to scale is more automation and no-touch loads and load bookings. So that's early on and just other ways where we're able to have all the freight in one system. It makes it easier for our employees. We're able to be more responsive to our customers, optimize freight selection, bring shippers and carriers together. So seeing a lot of benefit, and we're only going to see that grow from here.

Got it. Switching gears to Dedicated. We had a previous session here where we had a CFO talking about churn within the space, customer churn and how that's becoming an increasing problem and how they tackle that. What's your churn like? And kind of what do you see as the drivers of that and kind of what are the solutions?

Well, I think there's always going to be pockets of churn, more so in pockets that are more transactional, more commoditized as our portfolio evolves as Werner continues to evolve, being more, again, solution-oriented with large complex supply chains, being more stickier, having solutions that are differentiated on reliability, on service on that technology component.

So as we go forward, it's about long-term partnerships with large enterprise customers and seeing less churn. But churn is there in Dedicated, in logistics, in One-Way, having more wins than churn is obviously the goal. We've seen that more recently in Dedicated as well as logistics. And so excited to see more of it.

Got it. So when, not if, the upcycle shows up. How do you see that growth profile between the 3 segments? Which one leads which one will drive the margins maybe it's the same segment, but how do you see resources but dedicated versus 1 way versus logistics?

Well, as I said earlier, as we look longer term, I think more pronounced growth in Dedicated in logistics. Right now, logistics is our fastest-growing segment. It wasn't in the not too distant past where that was the same. So we would see that continuing. Again, there's still valuable pockets for 1 way in supporting our PowerLink offering that sits within logistics, in being an avenue to flex and surge with customer needs on the Dedicated side to support our Mexico cross-border offering to provide other kind of highly engineered solutions and be some of the glue between these different modes. So there's always going to be a sleeve of one business that's valuable to our portfolio, valuable to our customers. But Dedicated is durable. It's longer term. It's difficult to, there's a high capital intensity to it over a multiyear period, along with that comes a higher premium and margin expectation. It has been more durable. One of the more durable aspects of our portfolio during this down cycle. So that's a place that will continue to play. These wins that we papered earlier in the year, it was good to see that they were in a number of new verticals for us. There was only about 25% that was in our more concentrated areas of retail, food and beverage. The other 75% were in verticals of choice that we want to expand in that's positive to just see more use cases in Dedicated.

Got it. So what is this evolving mix mean for your long-term mid-cycle margins? Because obviously, logistics is a high ROIC low-margin business. So what's the target over time?

Yes. For our Truckload Transportation Services segment, we continue to maintain target mid-cycle target of low double-digit margins. So obviously, a way to go from our more recent baseline. Second quarter was 2.7% or 2.8% adjusted OI and TTS. If you were to normalize that for some of the start-up expenses, which were about $1 million by implementing some of the new dedicated wins and some other outliers in the quarter, we would call it closer to 4%, but that's still a long ways from 10%, 11%, 12% as a mid-cycle target. So pace and timing more uncertain to get there. But in terms of the how and the levers and the road map to get there, we continue to maintain confidence in that, really looking to mid-single-digit rate improvement on the One-Way side, more volume normalization in dedicated with existing and new customers as well as vertical expansion. That's number two.

Three, improvement in gains in the used equipment market, which we saw in the second quarter. One of the best quarters for gains that we've really seen in 2 years. And then our ongoing focus on cost discipline, leveraging technology and making those structural changes that can give us more operating leverage, particularly with a better environment. the sum of those is the pathway to low double-digit margins.

Got it. Questions from the audience?. Nothing?

I was wondering if you could talk a little bit about the AV strategy that you guys have, the pilot that's going on with Aurora and maybe thinking about, is there, any sort of thoughts on in terms of how it will change the business longer term? I know like longer term or hours of service is obviously a natural one. But would it change the unit economics of the business much? Or is a lot of the benefits being kind of shared with the multiple parties? And then maybe like over time, does that -- sorry I'll start with that and then maybe a follow-up.

Yes. So I'll start. So we're excited about it. We're partnering not just with Aurora, but with a number of other autonomous suppliers, and we've been close to them since they've launched. A large part of that is our ability to give them feedback on the realities of what it means to be an over-the-road trucker, so we've seen the technology. We've been in those trucks. I've personally been in all of their different products, seen it, and it's exciting. A few years ago, we talked about how those trucks were kind of like handing the keys to your car to a 14-year-old, and if you said, "Hey, drive down this road, it's straight, keep it between these 2 lines, don't leave the road." And when you get to the end, just stop and I'll come, help you out, the trucks could do that. Now it's way past that, and the trucks will move dynamically through traffic, figure out what's going on in the construction zone, figure out what's going on with other problems and hazards on the road, it's pretty exciting what it can do. And yet how many loads are actually being delivered by autonomous trucks right now, a few. So the impact today, not a lot. The impact in the near term is geographically limited, but in that geographic limitation, it is -- again, it's exciting and it's expanding all the time. And the technology, just like Rob was asking about AI earlier, and we weren't talking about that a couple of years ago and now everybody talks about it. The autonomous, the leaps and bounds that the technology is making is pretty exciting. What do we see for that for our business?

So we will need more truck drivers in the coming years and in the out years than we have today even in the bull case of autonomous. So the American Trucking Association has run the math on that, and it's about 1 million more truck drivers need to enter the market in the next decade to be able to serve the increase in demand over that decade, even at the bull case of autonomous. So the great thing that we can tell our drivers, and it's true, is if you're a 25-year-old coming into the market, you can have a truck-driving job for the rest of your 40-year career. And if you're a 50-year-old or a 60-year-old truck driver, you are absolutely okay. But what it will do is it will improve quality of life and home time for some drivers, especially in the South. So hub-to-hub deliveries, absolutely, long haul on a straight line across good roads with good weather, Absolutely. And then it will need people to make the final delivery at the ends of those, at the beginnings and heads of those locations. So that's a long answer.

We're about it the people still running the company still running that race are all the real deal. 5 to 10 years ago, there were a lot more people running and a lot of them aren't in the race anymore.

Mike.

Hey, guys. Could you talk a bit about, I guess, going back to pre-COVID on the One-Way side, the differences seem to be drop in hook power only well as pricing transparencies increased a bit, how did that change for the industry not a Werner question but more industry-wide, what that means for small owner-operators, what that means for large carriers, just how you think some of the changes over the last 5 or 6 years in the industry will have implications going forward?

Yes. Certainly, technology and just speed information to your point, has brought just more transparency, real-time data more information for a lot of different stakeholders in supply chain, shippers, carriers, providers. So decisions are more informed and more timely. I think it's really more about those that are going to differentiate those that are going to be more successful going forward is about how you use that information to optimize our network, our solutions, our pricing, how we use that information to automate certain decisions and put it all to work that benefits our customer with the optimal solution at a very competitive price. So it certainly made a decision making and other aspects of the industry, I think, more challenging, but that's where we are. And those that will excel, I think, is about how that information is used.

Great. I think we're out of time. So gentlemen, thanks so much for joining us, and we shall remain on cycle watch.

Great. Thanks, Ravi.